Question

What is the advantage of reinsurance in avoiding adverse selection?

a.

The reinsurer handles large repositories of data of different types

b.

The risk and liability is transferred from the direct insurance company to the reinsurer

c.

The insurer does not have to keep a large amount in reserve to meet the financial obligations of claim pay-outs

d.

The amount of reserves that must necessarily be held by a company can be reduced

Posted under IC22 Life Insurance Underwriting

Answer: (a).The reinsurer handles large repositories of data of different types Explanation:Since most of the reinsurers operate with their offices in many countries around the world, knowledge transfer or sharing of resources proves to be very useful in the day-to-day operations of an insurer. Additionally, the reinsurer handles large repositories of data of different types, which can be used to avoid adverse selection.

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