Evaluating Strategies to Influence Insured Behavior
A rental car company's insurance division observes that customers with full, zero-deductible coverage have a much higher rate of minor damage claims and at-fault accidents than customers with standard coverage. The company believes that once fully insured, drivers become less careful.
Propose two distinct contractual strategies the insurance division could implement to encourage more careful driving among its customers. For each strategy, explain the mechanism through which it would alter driver incentives. Finally, evaluate which of your two proposed strategies would likely be more effective and discuss a potential negative consequence for the company or its customers for each strategy.
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