Pricing insurance policies is made difficult because buyers have more information than sellers.This difficulty is an example of

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Asymmetric information occurs when one party in a transaction has more or better information than the other party. In this case, the buyers of insurance policies have more information about their own risk level than the sellers, making it difficult for the sellers to accurately price their policies. Moral hazard occurs when the insured party alters their behavior in a way that increases the likelihood of a claim, and adverse selection occurs when only high-risk individuals purchase insurance. The free-rider problem occurs when individuals benefit from a public good without contributing to its provision. None of these concepts accurately describe the difficulty of pricing insurance policies due to asymmetric information.

Pricing Insurance Policies Is Made Difficult Because Buyers Have More