Hi again, I just wondered if the new 'black box' technology which is used in cars to reduce cost of car insurance would count as a method for counteracting moral hazard? It is not included in the solutions, but think it does provide an incentive for drivers who are insured to drive as they would have done without insurance. Thank you
Hi Rachael, I would agree that the use of black boxes (to monitor the policyholders driving) is an example of something a car insurer could do to reduce moral hazard. It’s quite a specific example to a motor insurer though – the points given in the examiner’s report for this question are more generic and could apply to all types of insurance, given the question didn’t mention any specific product type. That being said, it is worth giving examples like these as they often do score credit. Just remember to give the related generic point too, ie something like ‘…to offer lower premiums to those less likely to claim’, as the black box is just one way in which the insurer could achieve this. Thanks, Richie
