Which of the following statements about the insurer death spiral is correct?
A) The insurance pool is shrinking to those who really need insurance.
B) The government has enacted laws to prevent the death spiral.
C) The insurance pool is shrinking to those who are facing low risk.
D) The insurance premium that needs to be paid is minimized.

Question

Quizplus · Accepted Answer

The insurer death spiral occurs when the insurance pool shrinks to only those who really need insurance, which leads to higher premiums, which causes even more low-risk individuals to drop out, further shrinking the pool and causing even higher premiums. This can lead to the collapse of the insurance market. While the government has enacted laws to try to stabilize insurance markets, they do not prevent the death spiral from occurring if the pool becomes too small and too high-risk. The insurance premium may actually increase in the death spiral as insurers try to cover their costs with a smaller pool of people.

Which of the Following Statements About the Insurer Death Spiral