Moral hazard becomes a greater problem to an insurer when customers
A)act in full view of the insurer.
B)can take actions that are not observable by the insurer.
C)get advance approval from the insurer for all actions.
D)have higher deductibles.

Question

Quizplus · Accepted Answer

Moral hazard occurs when customers take more risks or act in fraudulent ways because they know the insurer will bear the financial burden. This becomes a greater problem when customers can take actions that are not observable by the insurer, as the insurer cannot monitor or prevent these actions, leading to more potential losses. Choices A, C, and D do not necessarily increase moral hazard.

Moral Hazard Becomes a Greater Problem to an Insurer When