https://www.insurerbrain.com/w/index.php?action=history&feed=atom&title=Definition%3AAdverse_selection 2026-06-13T10:05:15Z Revision history for this page on the wiki MediaWiki 1.43.8 https://www.insurerbrain.com/w/index.php?title=Definition:Adverse_selection&diff=6581&oldid=prev 2026-03-09T16:21:32Z

<p>Bot: Creating new article from JSON</p> <p><b>New page</b></p><div>⚠️ &#039;&#039;&#039;Adverse selection&#039;&#039;&#039; is the tendency for individuals or entities with higher-than-average [[Definition:Risk | risk]] to seek out and obtain [[Definition:Insurance | insurance]] coverage more aggressively than their lower-risk counterparts. The phenomenon arises from [[Definition:Information asymmetry | information asymmetry]]: applicants generally know more about their own risk profile than the [[Definition:Insurance carrier | insurer]] does at the point of [[Definition:Underwriting | underwriting]], and those who expect to file [[Definition:Insurance claim | claims]] have a stronger economic incentive to buy coverage.<br /> <br /> 🔎 Left unchecked, adverse selection can set off a destructive cycle. As a [[Definition:Risk pool | risk pool]] skews toward higher-risk participants, [[Definition:Loss ratio (L/R) | loss ratios]] deteriorate, forcing the [[Definition:Underwriter | underwriter]] to raise [[Definition:Premium | premiums]]. Higher premiums then drive away the remaining lower-risk buyers, concentrating the pool further and pushing prices higher still — a dynamic sometimes called a [[Definition:Death spiral | death spiral]]. Insurers counteract this through detailed [[Definition:Risk assessment | risk assessment]], [[Definition:Medical underwriting | medical or behavioral underwriting]], [[Definition:Waiting period | waiting periods]], [[Definition:Deductible | deductibles]], and product design features that encourage broad participation.<br /> <br /> 🧩 Understanding adverse selection is essential for anyone involved in [[Definition:Pricing model | pricing]], [[Definition:Product development | product design]], or [[Definition:Insurance regulation | regulatory policy]]. Government-run programs such as the [[Definition:Affordable Care Act (ACA) | Affordable Care Act]] marketplaces tackle the problem with [[Definition:Individual mandate | mandates]] and subsidies that bring healthier participants into the pool. In commercial markets, [[Definition:Insurtech | insurtech]] firms increasingly use [[Definition:Predictive analytics | predictive analytics]] and alternative data to close the information gap, improving selection accuracy while broadening access to coverage.<br /> <br /> &#039;&#039;&#039;Related concepts&#039;&#039;&#039;<br /> {{Div col|colwidth=20em}}<br /> * [[Definition:Information asymmetry]]<br /> * [[Definition:Moral hazard]]<br /> * [[Definition:Risk pool]]<br /> * [[Definition:Underwriting]]<br /> * [[Definition:Risk selection]]<br /> * [[Definition:Death spiral]]<br /> {{Div col end}}</div>

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