What can an insurance company do to reduce adverse selection due to buyers holding private information?
A)Gather information on buyers that is related to their cost to the insurance company and can be used to set premiums.
B)Offer a single option insurance plan to buyers rather than several options of different premiums with differing deductibles.
C)Make sure that buyers have the option to buy and opt-out of insurance at any time.
D)Reduce the level of risk aversion among buyers so that more people will buy insurance.

Question

Quizplus · Accepted Answer

By gathering information on buyers that is related to their cost to the insurance company and can be used to set premiums, insurance companies can more accurately price their products and reduce adverse selection due to buyers holding private information. This can help to encourage healthier and lower-risk individuals to purchase insurance, rather than only those who are at a higher risk of needing medical care. Options B and C do not necessarily address adverse selection, and option D is not within the control of the insurance company.

What Can an Insurance Company Do to Reduce Adverse Selection