Question

TRUE OR FALSE WITH REASONS.

1. If insured drivers decide to drive more recklessly than uninsured drivers do, then an adverse selection has occurred.

Answer:

Reason:

Answer 1

Answer is False

When insured driver decided to drive more recklessly like (speeding while texting,eating,chatting without seat belt) than the insured drivers do.

So then adverse selection is not occur.

Because Adverse selection in insurance is occur when the insured (policy holder) has more information and knowledge than the insurer at the time of underwriting process.

For example- if a person has a careless or rash driver and he is also never used to follow the traffic rules willfully but a person fail to disclose this information to the vehicle insurer during the underwriting process.

So here a person have a more knowledge about their driving than the insurer.

Hence the vehicle insurer charges him a normal premium applicable to the rational driver than charging him a higher premium. So the insurer have to pay more claims with no profit due to the person hiding this fact.