General Insurance PrinciplesQuestion 167 of 215
An auto insurer notices that drivers with three recent at-fault losses are far more likely to apply for a new policy than drivers with clean records. This pattern is BEST described as:
a.Adverse selection
b.Reinsurance
c.Moral hazard
d.Speculative risk
Explanation
Adverse selection is the tendency of higher-than-average risks to seek insurance more aggressively than the general public. Underwriting standards, including the right to decline or surcharge, exist precisely to control adverse selection so the pool stays balanced.
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