RM 430 Exam 1 Study Guide Solutions
Perfectly competitive market characteristics - Ans:-1. Large numbers of buyers and sellers
2. No barriers to entry and exit
3. Homogenous product
4. Equal info available to buyers and sellers
HHI - Ans:-HHI<1500 - Not concentrated
1500<HHI<2500 - M...
Basis for insurance differentiation - Ans:✔✔-Rating from agency
Dividends from participating policies
Claims service
Advisory service
Financial supermarket?
Asymmetric Info favoring suppliers - Ans:✔✔-Insurers have better info on their financial strength than
consumers
Asymmetric info favoring consumers - Ans:✔✔-Adverse selection
Moral hazard
Adverse selection - Ans:✔✔-High risk customers take advantage of an insurer using their info to their
advantage
Controlled by underwriting, enhanced data collection, legal implications of misrepresentations
Moral hazard - Ans:✔✔-Behavioral tendency by PH that increases the expected loss to the insurer after
the policy is in place
controlled by policy deductibles, loss verification, and underwriting
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