Insurance companies try to mitigate the problem of adverse selection by:
A)asking potential customers questions to gain as much information as possible about the person's risk characteristics.
B)charging a higher premium to groups with characteristics that correlate with risky behavior.
C)charging a higher price to all individuals to counter the lack of information.
D)All of these are true.

Question

Quizplus · Accepted Answer

All of these strategies are used by insurance companies to mitigate the problem of adverse selection. They gather information to assess risk more accurately (A), adjust premiums based on risk factors (B), and sometimes increase prices across the board to offset the risks associated with incomplete information (C).

Insurance Companies Try to Mitigate the Problem of Adverse Selection