Final answer:
LifeTime Insurance's practice of screening customers and channeling high-risk clients to competitors is a strategy to manage adverse selection in the insurance industry.
Step-by-step explanation:
LifeTime Insurance screens its customers and attempts to have unprofitable customers buy services from competitors. This is an example of a strategy to manage adverse selection, which occurs when there is asymmetric information between buyers and sellers, leading to potentially high-risk individuals being more likely to purchase insurance. To avoid losses, insurance companies may implement measures to identify and separate prospective customers into different risk categories and may also indirectly encourage high-risk individuals to seek insurance elsewhere. When markets compel certain demographics to purchase insurance, as mandated by state or federal laws, this reduces concerns over adverse selection since pricing can be averaged across all insured parties. However, to manage financial sustainability, insurance companies continue to utilize strategies to mitigate selling policies to high-risk clients whenever feasible.
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