Answer: Adverse selection

## Explanation **Adverse selection** is the correct answer for car insurance underwriting as well, for the same fundamental reason as in life insurance. **Key points:** - **Adverse Selection (A)**: In car insurance, this occurs when high-risk drivers (those with poor driving records, frequent accidents, or risky behaviors) are more likely to apply for and maintain insurance coverage than low-risk drivers. The underwriter's job is to identify and differentiate between these risk categories. - **Catastrophic Risk (B)**: While relevant to insurance in general (e.g., natural disasters affecting many insured vehicles), this is not the primary concern for individual underwriting decisions. - **Longevity Risk (C)**: This is primarily a concern for life insurance and annuities, not car insurance. - **Moral Hazard (D)**: This is relevant to car insurance (e.g., drivers becoming less careful after getting insurance), but it's not specifically about the initial differentiation between good and bad risks during underwriting. As an insurance underwriter assessing car insurance applications, your main concern is adverse selection - identifying and properly pricing for the different risk levels among applicants to ensure the insurance pool remains financially viable.

Author: LeetQuiz Editorial Team