If insurance companies are required to offer coverage to all interested people,it is said that premiums for each person will be increased.Assume that the insurance market is perfectly competitive.What is the major reason for raising the premium?

Question

Quizplus · Accepted Answer

When insurance companies are required to offer coverage to all interested people, less healthy people will also join the pool of insured. This increases the risk for insurance companies and hence the premium is raised to cover the increased cost of insuring high-risk individuals. This is known as adverse selection, where people with higher risks are more likely to seek insurance coverage, leading to higher premiums for everyone. Therefore, option C is the correct answer. The other options are either irrelevant or not true in a competitive insurance market.

If Insurance Companies Are Required to Offer Coverage to All