Multiple Choice Question
What is a potential downside of increased private flood insurance participation?
The correct answer is currently "Variable consumer protections and limited availability"
The first part of the answer is correct but the "limited availability" part is not. Clearly, if there is higher private flood insurance participation, availability will be greater. Either delete this part or make the new answer "Variable consumer protections and NFIP experiences adverse selection".
Comments
I'm not sure you reasoning is correct. Private insurers may only operate in certain areas or choose not to cover high-risk zones, leaving gaps in coverage options for some homeowners so that would limit availability.
Ah. The limited availability is not with respect to limited availability of flood insurance in general, it is with respect to limited availability of private flood insurance. Got it, thanks!
Note also that reasoning like this is not cut and dried and I think an increase in private flood insurance could also be interpreted as pulling back of government flood insurance. In that scenario, that would limit availability in general.
But don't overthink this. A good general rule on the exam is to provide a short explanation of your reasoning to prove to the grader you understand the issue and have reached a supportable conclusion. For short answer questions, a range of answers is often given credit, provided there is at least half-way intelligent reasoning behind it.