An insurance company that writes automobile policies tries to separate safe drivers from risky drivers by offering policies that feature different deductibles and different premiums. This practice is best described as an example of
A)screening.
B)behavioral economics.
C)monitoring.
D)signaling.

Question

Quizplus · Accepted Answer

The practice of offering different deductibles and premiums based on a driver's risk level is an example of screening. The insurance company is attempting to identify and separate safe drivers (who are less likely to file claims) from risky drivers (who are more likely to file claims) in order to set appropriate prices for their policies. Behavioral economics, monitoring, and signaling may all be relevant to insurance practices, but they are not the best choices given the information provided.

An Insurance Company That Writes Automobile Policies Tries to Separate