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If governments make it compulsory to avail insurance protection, it is because
A Insurance companies need to he running profitably
B Insurance will generate moral hazard and adverse selection
C Insurance is a merit good and government wants people to consume it
D None of the above?
A Insurance companies need to he running profitably
B Insurance will generate moral hazard and adverse selection
C Insurance is a merit good and government wants people to consume it
D None of the above?
Most Upvoted Answer
If governments make it compulsory to avail insurance protection, it is...
Compulsory Insurance Protection by Governments
Governments often mandate insurance coverage to address specific economic and social concerns. The primary reasons include the following:
1. Insurance as a Merit Good
- Insurance is considered a merit good, meaning it has positive externalities.
- The government wants to ensure that individuals are protected against unforeseen risks (e.g., health, accidents).
- By making insurance compulsory, governments aim to promote social welfare and reduce the financial burden on individuals and families.
2. Mitigating Moral Hazard and Adverse Selection
- Moral hazard occurs when individuals take greater risks because they have insurance coverage, leading to higher claims.
- Adverse selection happens when individuals with higher risks are more likely to purchase insurance, leading to unbalanced risk pools.
- Compulsory insurance helps mitigate these issues by ensuring a broader risk pool, thus stabilizing insurance markets.
3. Financial Stability and Economic Resilience
- Compulsory insurance can enhance financial stability in society.
- By ensuring that more people are insured, governments can reduce the economic impact of disasters or health crises.
- This collective approach fosters resilience in the economy, allowing for quicker recovery in adverse situations.
Conclusion
In conclusion, governments make insurance compulsory primarily because it is a merit good that promotes societal welfare. It also serves to mitigate moral hazard and adverse selection, ultimately enhancing financial stability and economic resilience. Thus, the correct answer aligns most closely with option C.
Governments often mandate insurance coverage to address specific economic and social concerns. The primary reasons include the following:
1. Insurance as a Merit Good
- Insurance is considered a merit good, meaning it has positive externalities.
- The government wants to ensure that individuals are protected against unforeseen risks (e.g., health, accidents).
- By making insurance compulsory, governments aim to promote social welfare and reduce the financial burden on individuals and families.
2. Mitigating Moral Hazard and Adverse Selection
- Moral hazard occurs when individuals take greater risks because they have insurance coverage, leading to higher claims.
- Adverse selection happens when individuals with higher risks are more likely to purchase insurance, leading to unbalanced risk pools.
- Compulsory insurance helps mitigate these issues by ensuring a broader risk pool, thus stabilizing insurance markets.
3. Financial Stability and Economic Resilience
- Compulsory insurance can enhance financial stability in society.
- By ensuring that more people are insured, governments can reduce the economic impact of disasters or health crises.
- This collective approach fosters resilience in the economy, allowing for quicker recovery in adverse situations.
Conclusion
In conclusion, governments make insurance compulsory primarily because it is a merit good that promotes societal welfare. It also serves to mitigate moral hazard and adverse selection, ultimately enhancing financial stability and economic resilience. Thus, the correct answer aligns most closely with option C.
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If governments make it compulsory to avail insurance protection, it is becauseA Insurance companies need to he running profitablyB Insurance will generate moral hazard and adverse selectionC Insurance is a merit good and government wants people to consume itD None of the above?
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If governments make it compulsory to avail insurance protection, it is becauseA Insurance companies need to he running profitablyB Insurance will generate moral hazard and adverse selectionC Insurance is a merit good and government wants people to consume itD None of the above? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about If governments make it compulsory to avail insurance protection, it is becauseA Insurance companies need to he running profitablyB Insurance will generate moral hazard and adverse selectionC Insurance is a merit good and government wants people to consume itD None of the above? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If governments make it compulsory to avail insurance protection, it is becauseA Insurance companies need to he running profitablyB Insurance will generate moral hazard and adverse selectionC Insurance is a merit good and government wants people to consume itD None of the above?.
If governments make it compulsory to avail insurance protection, it is becauseA Insurance companies need to he running profitablyB Insurance will generate moral hazard and adverse selectionC Insurance is a merit good and government wants people to consume itD None of the above? for UPSC 2024 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about If governments make it compulsory to avail insurance protection, it is becauseA Insurance companies need to he running profitablyB Insurance will generate moral hazard and adverse selectionC Insurance is a merit good and government wants people to consume itD None of the above? covers all topics & solutions for UPSC 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for If governments make it compulsory to avail insurance protection, it is becauseA Insurance companies need to he running profitablyB Insurance will generate moral hazard and adverse selectionC Insurance is a merit good and government wants people to consume itD None of the above?.
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