Final answer:
XYZ Insurance's agreement to cover financial damages for Aces International if an employee commits fraud is a type of business insurance called fidelity or crime insurance. This insurance method entails regular premium payments by the insured party, and in return, the insurance company reimburses them for losses from covered events like fraud.
Step-by-step explanation:
The scenario described is known as insurance, specifically a type of coverage known as fidelity or crime insurance. This type of insurance is a method of protecting a company, such as Aces International, from financial loss due to wrongful acts committed by its employees, such as fraud. The insurance company collects regular payments or premiums from the insured entity, and in return, agrees to reimburse the company if a covered event, such as employee fraud, occurs.
While this coverage provides financial protection, it may also lead to a concept called moral hazard, where the insured party may become less vigilant in preventing fraud because they know the insurance will cover the losses. This is a critical concept in insurance and risk management as it can influence behavior and risk-taking.