OHCh12 - Adverse selection 1.4 Risk-Based Premiums...

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Chapter 12: Nonbank Finance
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1 Insurance See Table 1: Life insurance and Property and Casualty Insurance 1.1 Moral hazard The existence of insurance encourages the insured party to take risks that Example: A person covered by ±re insurance might not take as many precautions to prevent a ±re.
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1.2 Adverse selection want to purchase insurance the most. out the biggest life insurance policies possible. 1.3 Screening Insurance providers try to screen out good insurance risks from poor ones.
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Example: When you apply for auto insurance, your insurance agent asks your driving record. Example: The life insurer orders a medical examination.
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Unformatted text preview: Adverse selection 1.4 Risk-Based Premiums Insurance providers charge insurance premiums on the basis of how much risk a policy holder poses. Example: charging higher auto insurance premiums to people in a high risk category for accidents. Adverse selection 1.5 Deductibles The deductible is the &xed amount by which the insureds loss is reduced when a claim is paid o. Example: A $250 deductible on an auto policy means that if you suer a loss of $2,000 because of an accident, then the insurer will pay you only $1,750. Moral hazard 1.6 Coinsurance When a policy holder shares a percentage of the losses along with the insurer, their arrangement is called coinsurance . Example: Some medical insurance plans provide coverage for 80% of med-ical bills. Moral hazard...
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OHCh12 - Adverse selection 1.4 Risk-Based Premiums...

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