If an insurance company must charge all customers a uniform rate that reflects the average cost of insuring any individual in the population, this average cost will be too _______ to attract _______ risks but too _______ to fully cover the losses produced by the _______ risks.
A) high, bad, low, good
B) high, good, low, bad
C) low, good, high, bad

Question

Quizplus · Accepted Answer

If the insurance company must charge all customers a uniform rate, then they will charge a rate that reflects the average cost of insuring any individual in the population. This means that the rate will be too high for good risks and too low for bad risks. Therefore, the insurance company will attract bad risks, which will increase the overall cost of insurance. The only option that correctly identifies this relationship is B.

If an Insurance Company Must Charge All Customers a Uniform