Question

An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above

Answer 1

Answer: adverse selection

Explanation:

From the question, we are told that an

insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy.

The idea above is called adverse selection. This is a situation whereby either the seller or the buyer believes that he or she has more information than the other person regarding a particular product.