People with a bad driving record find it difficult to buy automobile insurance because insurance companies fear that ___________ may happen if they raise the premiums.

Question

Quizplus · Accepted Answer

Adverse selection occurs when insurance companies cannot distinguish between high-risk and low-risk customers, leading them to charge a uniform rate. High-risk individuals (like those with bad driving records) are more likely to buy insurance at this rate, while low-risk individuals may opt out, fearing that the risk of raising premiums could exacerbate this issue by driving away even more low-risk customers.

People with a Bad Driving Record Find It Difficult to Buy