As a result, of adverse selection problems in the fire insurance market, it is likely that over time
A) fewer low-risk people will be insured.
B) fewer high-risk people will be insured.
C) fewer low-risk and high-risk people will be insured.
D) more low-risk people will be insured.

Question

Quizplus · Accepted Answer

Adverse selection in the fire insurance market leads to a situation where insurers find it difficult to distinguish between high-risk and low-risk customers. Consequently, they might set premiums that are too high for low-risk individuals, discouraging them from buying insurance. This results in a higher proportion of high-risk individuals in the insured pool, making it less likely for low-risk individuals to be insured.

As a Result, of Adverse Selection Problems in the Fire