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 occurs when one party has more information about the product or service being offered than the other party. In this case, Clancy has more information about his likelihood to make a claim, leading him to purchase insurance. This poses a risk to the insurance company, as they may end up insuring a higher proportion of high-risk customers, leading to increased costs and potentially adverse financial consequences.

An Insurance Company Is Likely to Attract Customers Like Clancy