General Insurance PrinciplesQuestion 166 of 474
Underwriting exists largely to control adverse selection, which is the tendency of:
a.applicants with a greater than average chance of loss to seek insurance
b.insurers to compete for the same low-hazard accounts in a soft market cycle
c.agents to place business with whichever insurer pays the most commission
d.insureds to file more claims once a deductible has been paid in full
Explanation
Adverse selection is the pull of worse-than-average risks toward coverage, and toward keeping it, in larger proportion than the average risks the rate assumed. Underwriting screens and classifies applicants so the price matches the exposure. The choice about competing for good accounts describes market cycles, not selection against the insurer.
This topic, taught in full in the Personal Lines Insurance Producer guide. Personal Lines Insurance Producer — Complete Study Guide (2026) — PDF + EPUB, $19.99 · 14-day refund →
Practice all 474 questions free — no signup required.
Own the complete Personal Lines Insurance Producer guide — PDF + EPUB, $19.99 →
Related questions on this topic
- Because an insurance policy is written by the insurer and offered on a take-it-or-leave-it basis, any ambiguity in the wording is generally interpreted:
- A homeowner faces the chance that a kitchen fire will destroy the house. Insurers call this a pure risk because:
- An insurer writing hundreds of thousands of similar homeowners policies can price them because the law of large numbers holds that:
- A windstorm tears shingles off a roof that a poor repair had left loose. In insurance terms, the windstorm is:
- An insured leaves a car unlocked with the keys inside, reasoning that insurance would pay for it anyway. This attitude is:
- A restaurant installs a sprinkler system and at the same renewal raises its property deductible. These two steps are, in order:
Last reviewed: · editorial process
PrepPass team · Verified against California Personal Lines Insurance License Exam · How we review