Question

The idea that there are always some insureds (risks) that are less desirable than average risks, and that these insureds tend to seek or continue insurance coverage to a greater extent than better risks is termed:

a) Anti-selection
b) Risk assessment
c) Adverse selection
d) Risk avoidance

Answer 1

Adverse selection refers to a situation in which high-risk insurance buyers purchase more insurance than average without sufficiently disclosing their risk level to the insurer, leading to an imbalance in the insurance market.

Step-by-step explanation:

The idea that there are always some insured individuals (risks) that are less desirable than average risks, which includes individuals who are more likely to seek or continue insurance coverage to a greater extent than those who present a lower risk, is termed adverse selection.

This term refers to a situation where insurance buyers have more detailed information about their risk levels compared to what the insurance company is able to gather. Because of this, buyers who are high-risk have an incentive to purchase more insurance without disclosing their higher risk to the insurance company. An example of this could be someone buying health insurance who knows they have a family history of a certain illness, which makes them a higher risk, but this information may not be fully available to the insurance provider.