Adverse selection is
A)when people act differently because they are insured
B)when more risk averse people want to be insured more
C)when people at greater risk want to be insured more
D)when your guess at a test question is wrong

Question

Quizplus · Accepted Answer

Adverse selection is the situation where people who are at a greater risk of experiencing negative outcomes (e.g. illness or accident) are more likely to sign up for insurance. This is because they have more to gain from insurance than people who are at a lower risk. As a result, insurance companies may end up with a pool of policyholders who are more likely to make claims, which can increase costs and negatively impact the viability of the insurance product.

Adverse Selection Is