Insurance Companies Try to Mitigate the Problem of Adverse Selection

question 102

Multiple Choice

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

• A)asking potential customers a seemingly endless list of questions to gain as much information as they can about the person's risk aversion.
• B)charging a higher premium to groups with similar ages or behaviors that correlate with risky behavior.
• C)charge a higher price to all individuals to cover the lack of information.
• D)All of these statements are true.

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Definitions:

Phobia

A phobia is an irrational and overwhelming fear of a specific object, situation, or activity, leading to significant anxiety and avoidance behaviors.

Obsessive-Compulsive

A disorder characterized by unwanted repetitive thoughts (obsessions) and/or actions (compulsions).

Panic

A sudden, overwhelming fear that triggers severe physical reactions when there is no real danger or apparent cause.

Dissociative

Related to a disconnection or separation of perception, identity, memory, and awareness, often as a response to extreme stress or trauma.