For the insurance company, _____ results in adverse selection of customers.

Question

Quizplus · Accepted Answer

Asymmetric information leads to adverse selection in insurance because when one party (typically the buyer of insurance) has more or better information about the risk being insured than the other party (the insurance company), they are more likely to select into or out of insurance policies in a way that disadvantages the insurer. This can result in a pool of insured individuals that is riskier than the insurer anticipated.

For the Insurance Company, _____ Results in Adverse Selection of Customers