The pay less than competitor example demonstrates which benefit of insurance?

The pay less than competitor example demonstrates which benefit of insurance?

• A. Promote risk control
• B. Lower premiums regardless of risk
• C. Moral hazard
• D. Risk transfer

Answer: (A)

Premiums can reflect how much risk you bring to the table, and insurers reward safer behavior with lower prices. When someone pays less than a competitor because they’ve implemented effective loss-control measures, it shows that driving down the probability or severity of losses lowers the insurer’s expected costs. That incentive-based pricing is a clear example of risk control: using safety and preventive actions to reduce losses and, in turn, reduce premiums. It’s not about paying less no matter what the risk is, nor about moral hazard (which would involve taking more risks because you’re insured), and it doesn’t by itself illustrate transferring risk to the insurer.

Premiums can reflect how much risk you bring to the table, and insurers reward safer behavior with lower prices. When someone pays less than a competitor because they’ve implemented effective loss-control measures, it shows that driving down the probability or severity of losses lowers the insurer’s expected costs. That incentive-based pricing is a clear example of risk control: using safety and preventive actions to reduce losses and, in turn, reduce premiums. It’s not about paying less no matter what the risk is, nor about moral hazard (which would involve taking more risks because you’re insured), and it doesn’t by itself illustrate transferring risk to the insurer.