What is the Definition of Adverse Selection?
The tendency of those exposed to a higher risk to seek more insurance coverage than those at a lower risk. Insurers react either by charging higher premiums or not insuring at all, as in the case of floods. (Flood insurance is provided by the federal government but sold mostly through the private market.) In the case of natural disasters, such as earthquakes, adverse selection concentrates risk instead of spreading it. Insurance works best when risk is shared among large numbers of policyholders.
Source: Insurance Handbook A guide to insurance: what it does and how it works | https://www.iii.org/
Label: Insurance
Theme: Dictionary of Insurance Terms
Other Questions: What is the definition of Insurance?
What is the Definition of Adverse Selection?
Check out other definition of insurance terms below:
What is the Meaning of PREMISES In Insurance Terms?
The particular location of the property or a portion of it as designated in an insurance policy.
What is the Meaning of PREMIUM In Insurance Terms?
The price of an insurance policy, typically charged annually or semiannually. (See Direct premiums; Earned premium; Unearned premium)
What is the Meaning of PREMIUM TAX In Insurance Terms?
A state tax on premiums paid by its residents and businesses and collected by insurers.
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