An insurance company is likely to attract customers like Clancy who want 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

This situation is an example of adverse selection, where customers who have higher risks are more likely to purchase insurance as they know they have a higher probability of making a claim. This results in an imbalance in the risk pool of insured individuals, leading to higher payout costs for the insurance company.

An Insurance Company Is Likely to Attract Customers Like Clancy