Asked by Gavin Pagley on Sep 24, 2024
Verified
An indication that Insurance companies anticipate adverse selection is
A) they do not require a deductible
B) they classify clients into different risk types according to their claim history
C) they do not classify clients into different risk types according to pre-existing conditions
D) they do not require a co-payment
Adverse Selection
A situation where incomplete or asymmetric information leads to a market failure, typically in insurance markets, where riskier individuals are more likely to select into plans.
Insurance Companies
Organizations that provide financial protection and compensation for losses to individuals and entities in exchange for premiums.
- Understand strategies employed by insurance companies to mitigate adverse selection.
Verified Answer
KF
Kylan Fortt3 days ago
Final Answer :
B
Explanation :
Insurance companies classifying clients into different risk types according to their claim history is an indication that they anticipate adverse selection. This is because by classifying clients into different risk types, insurance companies are able to adjust their premiums to compensate for the increased risk of covering clients who are more likely to make claims. This helps to prevent adverse selection, where only high-risk clients decide to purchase insurance, leading to higher costs for the insurance company.
Learning Objectives
- Understand strategies employed by insurance companies to mitigate adverse selection.
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