All insurers must deal with the problem of adverse selection but certain types of insurance such as flood insurance have greater adverse selection problems.

Question

Quizplus · Accepted Answer

Adverse selection occurs more intensely in markets like flood insurance because individuals with a higher risk of experiencing the event (e.g., living in flood-prone areas) are more likely to purchase insurance, making it harder for insurers to balance risk across their pool of insured clients.

All Insurers Must Deal with the Problem of Adverse Selection