Modul V

• Ex-ante moral hazard: Behavior before the event affecting the likelihood of a loss

• Ex-post moral hazard: Behavior after the event affecting the size of the loss

• Internal moral hazard: Changes in behavior because the insurer cannot observe effort or risk-taking

• External moral hazard: Arises from third-party actions, like repair markets or service providers, that benefit from inflated claims

Insurance coverage often leads to higher prices in repair markets because insured individuals are less sensitive to costs, allowing repair shops to raise prices without losing demand

Solutions include:

• Deductibles: Shifting part of the cost to the insured to remain price sensitivity

• Repair shop networks: Limiting choice to reduce inflated claims

• Vertical integration: Direct involvement with repair shops to control costs

Insurance fraud includes intentional misrepresentation to claim benefits. It costs billions annually, particurarly in car, health, and travel insurance. Fraud impacts the entire market by raising premiums and introducing inefficiencies