As it applies to insurance, the adverse selection problem is the tendency for
A) those most likely to collect on insurance to buy it.
B) those who buy insurance to take less precaution in avoiding the insured risk.
C) sellers to price discriminate.
D) sellers to restrict output and charge high prices.

Question

Quizplus · Accepted Answer

Adverse selection in insurance occurs when those who are most likely to file claims and receive payouts are the ones who are most likely to purchase insurance policies. This leads to an imbalance in the risk pool and can cause insurance companies to charge higher premiums to compensate for the increased likelihood of paying out claims.

As It Applies to Insurance, the Adverse Selection Problem Is