Final answer:
When an insurance organization identifies its most profitable customers, they can target them for referral programs. U.S. health insurers combat adverse selection by creating diverse risk pools, and by having a broad client base, insurance companies can negotiate better rates with service providers, benefiting insured individuals.
Step-by-step explanation:
If an insurance organization identifies its most profitable customers, it can target those customers for referral programs. People generally tend to associate with other people like themselves, which can be beneficial for the insurance company as it could mean attracting more customers with similar risk profiles and profitability potential.
In the U.S. health insurance market, overcoming adverse selection involves grouping a mix of individuals with varying health risks. This method, utilized by employers or through health exchanges established by The Affordable Care Act, creates a balanced risk pool, reducing the likelihood that the insurance company will only attract high-risk individuals. Additionally, sustainable insurance pools rely on a good ratio of healthy people to sick people to prevent an insurance 'death spiral'.
Risk groups are essential in the consideration of insurance policies as they define a collective with similar probabilities of an adverse event. Companies can enhance consumer benefit by negotiating lower rates on behalf of their large clientele. These practices, in harmony with the fundamental laws of insurance, ensure that payments cover claims, and operational costs, and generate profits for the firm.