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Average $/2$

Insurance premiums

In the following table, determine whether each scenario relates to the adverse selection problem or the moral hazard problem.

Adverse Selection

Problem

Moral Hazard

Problem

Antonio develops a sleep disorder and contacts his insurer to increase his auto

coverage.

After Valerie purchases life insurance, she goes skydiving with a friend.

In addition to adverse selection and moral hazard, which of the following are considered when developing insurance premiums? Check all that apply.

Profit and overhead expenses for the insurance company

The number of insurance policies that the insured maintained in previous years

Transfer payments made by the government to the insurer

The probability of having to pay the insured for potential losses