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In economics, insurance, and risk management, adverse selection is a market situation where asymmetric information results in a party taking advantage of undisclosed information to benefit more from a contract or trade.
Life insurance is all about risk management. The thing is, most people think buying life insurance is black and white. You want protection, you buy a policy. But insurers know it’s far more ...
Death spiral is a condition where the structure of insurance plans leads to premiums rapidly increasing as a result of changes in the covered population. It is the result of adverse selection in insurance policies in which lower risk policy holders choose to change policies or be uninsured. The result is that costs supposedly covered by ...
An example of adverse selection is when people who are high-risk are more likely to buy insurance because the insurance company cannot effectively discriminate against them, usually due to lack of information about the particular individual's risk but also sometimes by force of law or other constraints.
Economists distinguish moral hazard from adverse selection, another problem that arises in the insurance industry, which is caused by hidden information, rather than hidden actions. The same underlying problem of non-observable actions also affects other contexts besides the insurance industry.
Health insurance also falls into the consideration of adverse selection where healthy individuals with no family history of medical concerns may choose not to purchase health insurance as they don't feel the need to pay the premium, where other individuals with pre-existing conditions or a family history of medical issues are likely to purchase ...
Insurance company ratings take into account a number of factors. Besides the finances, the general health and ethics of the company are also considered before rating the insurer. Some other ...
Rather, the underwriter considers the size, turnover, and financial strength of the group. Contract provisions will attempt to exclude the possibility of adverse selection. Group life insurance often allows members exiting the group to maintain their coverage by buying individual coverage.