Business Glossary

tendency of people with significant potential to file claims wanting to obtain insurance coverage. For example, those with severe health problems want to buy health insurance, and people going to a dangerous place such as a war zone want to buy more life insurance. Companies employing workers in dangerous occupations want to buy more worker's compensation coverage. In order to combat the problem of adverse selection, insurance companies try to reduce their exposure to large claims by either raising premiums or limiting the availability of coverage to such applicants.

the tendency of people with a greater likelihood of filing claims to be more interested in obtaining insurance coverage. For example, those with severe health problems want to buy health insurance, and people going to a dangerous place such as a war zone want to buy more life insurance. To combat the problem of adverse selection, insurance companies try to reduce their exposure to large claims by either raising premiums or screening out such applicants.

process in life insurance by which an applicant who is uninsurable, or is a greater than average risk, seeks to obtain a policy from a company at a standard premium rate. Life insurance companies carefully screen applicants for this reason, since their premiums are based on policyholders in average good health and in non-hazardous occupations.