The course: Risk Management & Insurance

A cross-subsidy in insurance occurs in which situation?

A. When each risk class pays a premium that's appropriate for their level of risk B. When buyers in different risk groups pay the same premium so that lower-risk buyers subsidize the higher-risk buyers C. When insurance is designed to encourage a change in behavior of risky buyers D. When different lines of insurance (e.g., auto and homeowners) are priced so that those with higher administrative costs subsidize those with lower administrative costs

FYI, the answer is not D