PART 2: Deductibles in Insurance A deductible is an amount of money which insurers have responsibility to pay an insured loss first, then insurance firms will cover the rest. The deductible is considered as a tool for insurance firms to reduce moral hazard problems.

1. Give at least one example of moral hazard problem in property insurance and health insurance. 2. Provide at least two reasons to explain why a deductible can help to reduce moral hazard. 3. Discuss how a deductible influences fair price of insurance policy and willingness to pay insurance of customers.