Asked by Angie Urena on Sep 24, 2024
Verified
Insurance companies create wealth by
A) reducing the amount of risk that risk averse individuals must bear
B) reducing the amount of risk that risk loving individuals must bear
C) increasing the amount of risk that risk averse individuals must bear
D) moving an asset from low to high value use
Wealth Creation
involves the generation of income, assets, and economic value through various means such as investment, entrepreneurship, and innovation, contributing to financial growth and prosperity.
Risk Averse
A preference for certain outcomes over others, even if the uncertain option may offer a higher expected return.
- Understand thoroughly the idea of adverse selection and why it is pivotal in the insurance sector.
Verified Answer
AC
aditi chatterjeeabout 17 hours ago
Final Answer :
A
Explanation :
Insurance companies reduce the amount of risk that risk averse individuals must bear by pooling resources and distributing the risk among many policyholders. This reduces the likelihood of large financial losses for any one individual and allows them to take on more risk than they would be comfortable with otherwise. By reducing the amount of risk that individuals must bear, insurance companies create wealth by enabling people to engage in economic activities they might not otherwise feel comfortable undertaking.
Learning Objectives
- Understand thoroughly the idea of adverse selection and why it is pivotal in the insurance sector.