When an Insurance Company Cannot Observe the Characteristics of Potential

question 26

Multiple Choice

When an insurance company cannot observe the characteristics of potential clients and offers a contract that is accepted by bad risks, the company suffers from

• A) adverse selection
• B) moral hazard
• C) pooling equilibrium

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Definitions:

Inventory

The stock of goods or materials held by a company, typically used in production or sold to customers.

Service Costing

The process of determining the total cost involved in providing a service, including direct and indirect costs, to establish pricing and profitability.

Implementing

The process of putting a decision, plan, strategy, or law into effect.

Realisation Rate

The percentage of billed work hours or fees that is actually collected as revenue, often used in professional services to measure efficiency.