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Insurance companies' attempts to minimize adverse selection explains which of the following insurance practices?
1. Risk-based premiums
2. Deductibles
3. Restrictive provisions
4. Prevention of fraud
Explanation: Risk-based deposit insurance is insurance with premiums that reflect how prudently banks act when investing their customers' deposits. The idea is that flat-rate deposit insurance shelters banks from their true level of risk-taking and encourages poor decision-making and moral hazard.
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