What is the definition of Adverse Selection?

Adverse Selection refers to the tendency of people who carry more risk to have themselves insured. Of course, it is more likely for a person who thinks he needs insurance to look for insurance as compared to those who are exposed to lower risk. Those who are exposed to more risk include people who have high risk lifestyles (i.e. sky divers, bungee jumpers) or who have risky jobs (i.e. policemen, firemen).

What the insurance companies do is to try to spread the risk among a large number of policyholders. They do this by putting limits on the level of insurance coverage given to high risk persons. They can also raise the premiums for those who are exposed to more hazards.

• Businessowners Policy / BOP
• Competitive State Fund
• Excess and Surplus Lines
• Employer’s Liability
• Blanket Insurance