Explanation:
Adverse selection is the correct answer because it refers to the situation where individuals with higher risk profiles are more likely to seek insurance coverage than those with lower risk profiles. In this scenario:
Why the other options are incorrect:
Adverse selection occurs because high-risk individuals have more incentive to purchase insurance, creating an imbalance in the risk pool that can lead to financial losses for the insurer if not properly managed through risk assessment and pricing.
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You notice that some applicants have a history of multiple traffic violations and accidents. Which of the following terms best describes the risk that these applicants pose to the insurance company?
A
Investment risk
B
Underwriting risk
C
Operational risk
D
Adverse selection
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