If an insurance company underestimates the number of high- cost customers, it is likely to face_______ .

Question

Quizplus · Accepted Answer

Underestimating the number of high-cost customers leads to adverse selection, where the insurance company ends up with a greater proportion of high-risk customers than expected, resulting in higher costs and lower profits. This can happen if the insurance company does not have enough information to properly assess the risk profile of their customers or if they are not offering competitive pricing to attract low-risk customers.

If an Insurance Company Underestimates the Number of High- Cost