Final answer:
Insurers use risk-sharing mechanisms like fraud investigations and behavior monitoring, such as offering lower premiums for installing safety systems, to combat moral hazard and promote risk control.
Step-by-step explanation:
Insurers employ several risk-sharing mechanisms to enhance risk control among policyholders. One primary method is instituting investigations to deter insurance fraud, addressing the issue of moral hazard where individuals may behave less cautiously when insured. Another way is through monitoring behavior linked to the risk, such as rewarding lower insurance premiums to businesses that install and maintain robust security and fire sprinkler systems. This positive reinforcement encourages the adoption of measures that can mitigate the impact of potential losses, aligning the interests of both the insurer and the insured.
Furthermore, the concept of an actuarially fair insurance policy is also a part of risk control as it aims to set premiums such that, over time, the amount paid in is roughly equal to the benefits received, which discourages overutilization. Through these mechanisms, insurance companies strive to create a balance between providing protection and incentivizing caution among their customers.