When you buy motor insurance the policy will generally stipulate that the policyholder is responsible for the first part of any claim; for example, you might have to pay the first €250 or €1,000 of any claim and the insurance company would pay the rest ans so the amount you would have to pay forms the deductible.
i) Explain how this arrangement help to deal with the problem of moral hazard?
ii) Explain how this arrangement help to deal with the problem of adverse selection?