WHAT INITIATIVES BY INSURANCE COMPANIES IS PRIMARILY USED TO MIGRATE THE EFFECTS OF ADVERSE SELECTION,RATHER THAN...

WHAT INITIATIVES BY INSURANCE COMPANIES IS PRIMARILY USED TO MIGRATE THE EFFECTS OF ADVERSE SELECTION,RATHER THAN MORAL HAZARD?

Expert Solution

Adverse selection by insurance company refers to choosing the those demanders who are exposed to high risk.

Following can help reduce the effects of adverse selection:

Identifying the high risk demanders from low risk
Limiting the amount of premiums.
Bundling various insurance packages.
Risk Spreading: that is insuring people with different risks that are subject to risks at different point in time such as insuring less people who are affected drought affected people because they are affected at the same time only.

Rahul Sunny answered 2 years ago

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