An insurance company is likely to attract customers like Clancy, who wants to purchase insurance because he knows better than the company that he is more likely to make a claim on a policy.What is the term used to describe the situation above?

Question

Quizplus · Accepted Answer

Adverse selection refers to a situation where one party has more information about the quality of a product or service than another party. In this case, Clancy knows more about his likelihood of making a claim than the insurance company, which could lead to adverse selection if the company ends up insuring a disproportionate number of higher-risk customers like Clancy.

An Insurance Company Is Likely to Attract Customers Like Clancy