nsurance buyers have more information about whether they are high-risk or low-risk than the insurance company does. This creates an asymmetric information problem for the insurance company because buyers who are high-risk tend to want to buy more insurance, without letting th insurance company know about their higher risk. How might this problem impact an insurance company? O The company will not be impacted. O The insurance buyers, not the company, will be impacted. As high risk buyers submit claims, they will use up the company's funds for that year, and since the company did not adjust for these high risk claims, once that money is used up, remaining claimants won't receive any coverage.
nsurance buyers have more information about whether they are high-risk or low-risk than the insurance company does. This creates an asymmetric information problem for the insurance company because buyers who are high-risk tend to want to buy more insurance, without letting th insurance company know about their higher risk. How might this problem impact an insurance company? O The company will not be impacted. O The insurance buyers, not the company, will be impacted. As high risk buyers submit claims, they will use up the company's funds for that year, and since the company did not adjust for these high risk claims, once that money is used up, remaining claimants won't receive any coverage.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
![Insurance buyers have more information about whether they are high-risk or low-risk than the
insurance company does. This creates an asymmetric information problem for the insurance
company because buyers who are high-risk tend to want to buy more insurance, without letting the
insurance company know about their higher risk. How might this problem impact an insurance
company?
F
T
O The company will not be impacted.
O The insurance buyers, not the company, will be impacted. As high risk buyers submit claims, they will use up
the company's funds for that year, and since the company did not adjust for these high risk claims, once that
money is used up, remaining claimants won't receive any coverage.
The company will be faced with heavy losses.
The insurance company may decide not to sell insurance in this market at all or otherwise choose not to sell
insurance to those they can identify as high risk.
106
#
C
4
$
JUL
21
tv♫♬
%
MacBook Pro
Search or type URL
+
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D
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N
Ⓒ](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Feb5100fd-96bf-46d3-bc62-7120bd797ba5%2F9a177a84-0e75-48e4-b7cd-2e1e57947228%2Fophj2z7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Insurance buyers have more information about whether they are high-risk or low-risk than the
insurance company does. This creates an asymmetric information problem for the insurance
company because buyers who are high-risk tend to want to buy more insurance, without letting the
insurance company know about their higher risk. How might this problem impact an insurance
company?
F
T
O The company will not be impacted.
O The insurance buyers, not the company, will be impacted. As high risk buyers submit claims, they will use up
the company's funds for that year, and since the company did not adjust for these high risk claims, once that
money is used up, remaining claimants won't receive any coverage.
The company will be faced with heavy losses.
The insurance company may decide not to sell insurance in this market at all or otherwise choose not to sell
insurance to those they can identify as high risk.
106
#
C
4
$
JUL
21
tv♫♬
%
MacBook Pro
Search or type URL
+
W
D
P
N
Ⓒ
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