Adverse selection results in which of the following?
A)no underwriting is necessary
B)applicants for insurance have a higher probability of loss than the average group of insureds
C)the federal government must write the insurance
D)better insureds are attracted to the group

Question

Quizplus · Accepted Answer

Adverse selection occurs when applicants for insurance are more likely to have a higher probability of loss than the average group of insureds. This results in insurers having to charge higher premiums to compensate for the increased risk, or potentially losing money on the policies they write. Underwriting is typically necessary to identify and differentiate between high-risk and low-risk applicants. The federal government does not necessarily need to write the insurance in the case of adverse selection. Better insureds are actually attracted to a group when there is favorable selection, which is the opposite of adverse selection.

Adverse Selection Results in Which of the Following