Why do you think that moral hazard exist in insurance markets and how it can be...

Why do you think that moral hazard exist in insurance markets and how it can be reduced?

Expert Solution

Moral hazards occur when one one individuaI takes risk and another individuaI or party bears the burden of the risk on behalf of him.
Moral harzards do occur in insurance market's too when :-

Insured customers are more likely to take greater risks, as they know that their claim will be paid by their cover.
The insurance company's charge higher rates to more risk prone customers.

These moral hazards in the insurance markets can be removed by :-

Penalize bad behaviour :- The insurance company must punish any unhealthy behaviour to mitigate the losses to moral hazard.
Use of co-pay and co-deductives :- using co-pay and co- deductives the insurance companies can persuade the customers to pay for the part of the service they receive.
Good claims metrices :- Good claims metrices are certain metrices that insurance markets must use frequently inorder to determine the existence of moral hazard.

Rahul Sunny answered 1 year ago

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