General Insurance✓ Verified · outline & fact-checked · Sep 2026Difficulty 2/5
Adverse selection in health insurance occurs primarily because:
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Answer & full 3-part explanation (select an option above, or peek)
Why A is correct
Adverse selection results from information asymmetry: the applicant knows more about his or her health than the insurer, and people who expect to need care are disproportionately likely to apply. If the insurer cannot distinguish these applicants, the pool becomes skewed toward high-risk lives, average claims rise, and premiums become inadequate. Underwriting, medical questions, and enrollment requirements exist to limit this imbalance and keep the pool balanced.
Why the other options are wrong
- B) Insurers cannot predict individual claims; they rely on group probabilities, and that uncertainty is precisely what creates the adverse-selection problem.
- C) Adverse selection means the unhealthy disproportionately seek coverage; it is the healthy who are harder to attract into the pool.
- D) Regulation requiring uniform products does not cause adverse selection; the imbalance of information and incentives does.
Memory hook
The sick knock first, and they know it. Information asymmetry is the root of adverse selection.