Adverse selection in insurance requires that
A)all people face the same risk
B)potential customers facing more risk are no more interested in purchasing insurance
C)people are not risk averse
D)insurers cannot tell higher risk people from lower risk people

Question

Quizplus · Accepted Answer

Adverse selection occurs when insurers cannot distinguish between higher risk individuals and lower risk individuals. This leads to a situation where those with higher risk are more likely to purchase insurance, which can lead to higher costs for insurers and potentially higher premiums for everyone.

Adverse Selection in Insurance Requires That