ACT 3030 Lecture Notes - Lecture 10: Terrorism Risk Insurance Act, Term Life Insurance, Casualty Insurance
Document Summary
The earliest form of insurance was ________ insurance. The certainty equivalent for risk-averse people who buy insurance is the insurance premium they pay. The problem of ________ occurs when those most likely to get large insurance payoffs are the ones who want to purchase insurance the most. adverse selection. When those most likely to produce the outcome insured against are the ones who purchase insurance, insurance companies are said to face the problem of ________. adverse selection. To prevent adverse selection, health and life insurance companies may do all the following except charge the same premiums to all policyholders. In the case of an insurance policy, ________ occurs when the existence of insurance encourages the insured party to take risks that increase the likelihood of an insurance payoff. moral hazard. Some automobile owners will drive faster knowing that they are covered by health and automobile insurance. This behavior creates the problem of ________. moral hazard.
