If reckless drivers are more likely to buy automobile insurance than safe drivers are,
A) a moral hazard has occurred.
B) adverse selection has occurred.
C) the market for insurance is efficient.
D) then automobile insurance will be fairly priced.

Question

Quizplus · Accepted Answer

This scenario represents adverse selection, as the riskier drivers are more likely to seek out insurance coverage. This can lead to higher premiums for all insured individuals, as the insurance company is taking on a greater risk of paying out claims.

If Reckless Drivers Are More Likely to Buy Automobile Insurance