What term describes the tendency of individuals with higher loss exposure to purchase insurance more often than those at average risk?

• A. Adverse selection
• B. Favorable selection
• C. Moral hazard
• D. Underwriting

Answer: (A)

Adverse selection describes the tendency for individuals with higher loss exposure to buy insurance more often than those at average risk. This happens because applicants know more about their own health and risk factors than the insurer, so high-risk individuals are more motivated to obtain coverage. Without underwriting or risk-based pricing, the insurance pool becomes riskier than the overall population, leading to higher expected claims. The other terms refer to different ideas: favorable selection is the opposite pattern (healthier people buy more insurance), moral hazard is the change in behavior after being insured, and underwriting is the process used to evaluate and price risk, not the tendency of buyers to purchase.