Question

Coverall, Inc., an insurance company, recently moved into the motorcycle insurance market. Coverall was concerned that the most likely motorcycle insurance customers are those who ride their motorcycles recklessly, because they would benefit most from insurance coverage. Since Coverall cannot distinguish perfectly between high-risk and low-risk cyclists, it raised its motorcycle premiums in an effort to account for the reckless riders.

The economic problem in this story is known as: _______

Answer 1

Answer: Adverse Selection

Step-by-step explanation:

The adverse selection is one of the term that helps in managing the insurance, the risk management and the economics when the consumer and the producer both have the different types of data about the specific product.

It is the situation when the applicant are managing the overall coverage area and it is occur due to the high risk management.

According to the question, the Coverall Inc. is one of the type of insurance organization that helps in managing the insurance market and the given economical problem in the given story is illustrating the adverse selection situation.

Therefore, Adverse Selection is the correct answer.