Insurance is possible and can be profitable because of
A) private information.
B) adverse selection.
C) moral hazard.
D) risk aversion.

Question

Quizplus · Accepted Answer

Insurance is profitable because individuals are risk-averse and willing to pay a premium to transfer the risk of potential losses to an insurance company. Risk aversion is the underlying reason why insurance works as a business model. Private information, adverse selection, and moral hazard can all create challenges for insurance companies in setting premiums and managing risk, but they do not explain why insurance can be profitable.

Insurance Is Possible and Can Be Profitable Because of