Definition

The method insurers use to determine how much you pay for coverage. Models take into account risk, claims history, and other key factors.

What to consider

  • Monitor the risk profile of policyholders.
  • Implement measures to balance the risk pool.
  • Review enrollment strategies to mitigate adverse selection.

Real world scenarios

  • An insurer faced adverse selection when high-risk individuals disproportionately signed up for coverage.
  • A group plan experienced adverse selection as healthier employees opted out, leaving a riskier pool.
  • An insurer adjusted premiums to counteract the effects of adverse selection.

Related terms

Insurance & Financial Protection