What might insurers do if moral hazard becomes a significant issue?

When moral hazard becomes a significant issue, insurers typically respond by increasing risk assessment measures and premiums. Moral hazard refers to the situation where the behavior of an insured party changes as a result of having insurance coverage, leading them to take on greater risks than they would if they were fully liable for the consequences.

By enhancing risk assessment measures, insurers can better evaluate the level of risk associated with providing coverage to individuals or entities. This may involve more thorough screening processes, detailed underwriting practices, and possibly implementing additional terms within the insurance policy designed to mitigate the increased risk.

Moreover, increasing premiums allows insurers to adjust the cost of coverage to reflect the higher risk that has emerged due to the moral hazard. This strategy helps insurers to protect their financial stability by ensuring that the premiums charged are in alignment with the potential risks they are undertaking. Therefore, this method not only addresses the moral hazard but also allows the insurer to remain feasible and competitive in the market.

The other options, while they may seem like potential responses to moral hazards, are less practical and could lead to negative implications for both insurers and policyholders.