Question

What is adverse selection?

a.

The process of accepting individuals with sub-standard risks at standard rates

b.

The process of rejecting individuals with sub-standard risks

c.

The process of charging higher premiums for standard risks

d.

The process of refusing to provide coverage for high-risk individuals

Answer: (a).The process of accepting individuals with sub-standard risks at standard rates Explanation:Adverse selection is the phenomenon where more individuals with sub-standard risks get insured because insurance companies do not differentiate between standard and sub-standard risks, resulting in losses for the insurance companies.

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