Insurance Companies Try to Mitigate the Problem of Adverse Selection

question 112

Multiple Choice

Insurance companies try to mitigate the problem of adverse selection by:

• A)asking potential customers questions to gain as much information as possible about the person's risk characteristics.
• B)charging a higher premium to groups with characteristics that correlate with risky behavior.
• C)charging a higher price to all individuals to counter the lack of information.
• D)All of these are true.

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Definitions:

Societal Benefits

Refers to advantages or positive impacts that actions, policies, or products have on the wider community or society as a whole.

Unfair Competition

Practices that are unjust or deceptive in the marketplace, infringing on the rights of others to conduct business freely and equitably.

Ethical Issues

Situations or problems requiring a choice between conflicting moral principles or actions.

Society

A community of people living together in an ordered community, sharing customs, laws, and organization.