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

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

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Expert Solution

Moral hazard occurs when one party or individuaI takes risk Knowing that if something happens, the third party will bear the burden.
Moral harzards occur in insurance markets when :-

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

These moral harzards can be removed by :-

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

Rahul Sunny answered 1 year ago

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