Asked by Abigail Costiniano on Apr 27, 2024
Verified
As a result of frequent flooding,the insurance market has noted a positive correlation between flooding and the amount of insurance monies paid out for such floods.Holding demand for insurance constant,if flooding is expected to continue to be a problem,flood insurance premiums will MOST likely:
A) rise.
B) fall.
C) stay the same.
D) rise,fall,or stay the same.
Flood Insurance Premiums
The payments made periodically to an insurance company in exchange for coverage against loss or damage caused by flooding.
Positive Correlation
A relationship between two variables where they move in the same direction, meaning as one variable increases, so does the other.
- Analyze the effects of shifts in risk aversion on the dynamics of insurance markets and the pricing of premiums.
Verified Answer
CB
Christiaan BurgosMay 03, 2024
Final Answer :
A
Explanation :
Due to the positive correlation between flooding and insurance payouts, insurance companies will likely increase premiums to compensate for the increased risk of payouts.
Learning Objectives
- Analyze the effects of shifts in risk aversion on the dynamics of insurance markets and the pricing of premiums.
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