Final answer:
A property manager taking out insurance is an example of transferring risk. Insurance companies also undertake measures to mitigate moral hazard, such as offering lower rates for businesses that install safety systems and undergo regular inspections.
Step-by-step explanation:
When a property manager takes out insurance, they are engaging in transferring risk. This is a strategy where the potential financial burden of a risk, such as property damage, is shifted from the manager to the insurance company. By paying a premium, the manager ensures that the insurance company will bear the financial responsibility in case of an incident like theft, fire, or natural disasters.
In terms of handling moral hazard, although it cannot be completely eliminated, insurance companies can mitigate its effects. For example, they may reduce insurance rates for businesses that take proactive steps to minimize risks, such as installing advanced security and fire sprinkler systems and having these systems inspected regularly.
These measures by the insurance company serve to encourage businesses to maintain a high standard for safety and security, which in turn reduces the likelihood of expensive claims and helps to keep premium costs down for all policyholders.