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⚠️ '''Death spiral''' is a term used in insurance to describe a self-reinforcing cycle in which rising [[Definition:Premium | premiums]] drive lower-risk policyholders out of a [[Definition:Risk pool | risk pool]], leaving behind a progressively sicker or riskier population, which in turn forces further premium increases — until the pool becomes economically unviable. The concept is most closely associated with [[Definition:Health insurance | health insurance]] markets, but analogous dynamics can emerge in any line where [[Definition:Adverse selection | adverse selection]] goes unchecked, including certain [[Definition:Workers' compensation insurance | workers' compensation]] or [[Definition:Professional liability insurance | professional liability]] segments.

🔄 The mechanics follow a predictable sequence. An [[Definition:Insurance carrier | insurer]] sets rates based on the expected average [[Definition:Loss cost | loss cost]] of the pool. If healthier or lower-risk individuals find the premium unattractive relative to their personal risk — or if a competitor cherry-picks them with more targeted [[Definition:Pricing model | pricing]] — they drop out. The remaining book now has a higher average [[Definition:Claims frequency | claims frequency]] or [[Definition:Claims severity | severity]], so the [[Definition:Actuary | actuary]] must raise rates at the next renewal cycle. Each increase triggers another wave of departures by the next-best risks, and the spiral deepens. In individual [[Definition:Health insurance | health insurance]] markets before the Affordable Care Act, this pattern contributed to the collapse of several state-level risk pools.

🛡️ Regulatory tools such as [[Definition:Guaranteed issue | guaranteed-issue]] mandates, [[Definition:Community rating | community rating]], [[Definition:Individual mandate | individual mandates]], and [[Definition:Risk adjustment | risk-adjustment]] transfer programs exist specifically to interrupt or prevent death spirals by keeping a broad cross-section of risks in the pool. From a carrier strategy perspective, recognizing early indicators — accelerating [[Definition:Lapse rate | lapse rates]] among preferred segments, deteriorating [[Definition:Loss ratio (L/R) | loss ratios]], and shrinking [[Definition:Earned premium | earned premium]] volume — is critical for intervening before the cycle becomes irreversible. Understanding this dynamic is foundational for anyone involved in [[Definition:Product design | product design]], [[Definition:Rate filing | rate setting]], or public-policy discussions that shape the structure of insurance markets.

'''Related concepts'''
{{Div col|colwidth=20em}}
* [[Definition:Adverse selection]]
* [[Definition:Risk pool]]
* [[Definition:Community rating]]
* [[Definition:Risk adjustment]]
* [[Definition:Guaranteed issue]]
* [[Definition:Loss ratio (L/R)]]
{{Div col end}}

Definition:Death spiral - Revision history

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