General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
The tendency of persons with a higher-than-average chance of loss to seek insurance more actively than those with average risk is known as:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Adverse selection (anti-selection) occurs when poor risks are more likely than good risks to apply for and keep coverage — for example, a smoker eagerly buying life insurance. Underwriting exists precisely to detect and price this tendency, and agents must present applications accurately so the insurer can classify the risk properly.
Why the other options are wrong
- B) Indemnification is the insurer's obligation to restore the insured financially after a covered loss — not a risk-selection phenomenon.
- C) Reinsurance is insurance purchased by an insurer to transfer part of its own risk — a different mechanism entirely.
- D) A morale hazard is carelessness arising after coverage exists, not the pre-application tendency of poor risks to seek coverage.
Memory hook
Adverse selection = the sick and the reckless knock first. Underwriting is the bouncer who checks who is actually at the door.