The life insurance market is susceptible to two primary challenges: moral hazard and adverse selection. Moral hazard arises when individuals take in riskier behaviors after purchasing insurance, knowing they are protected from the full results. For example, a insured person might
The core concept behind insurance markets is risk pooling. Essentially, a large group of individuals contribute payments into a common fund. This fund is then used to compensate those within the pool who experience a covered event. The beauty of this arrangement lies in the law of large numbers: Risk Pooling Principles of Risk Management Systems