adverse selection

(redirected from Anti-Selection)
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Adverse selection

Refers to a situation in which sellers have relevant information that buyers lack (or vice versa) about some aspect of product quality.

Adverse Selection

A sociological phenomenon in which those persons with the most dangerous lifestyles or careers are the most likely to buy life insurance policies. Adverse selection may also occur if those persons conceal or falsify relevant information when they apply for the insurance policy. This has the potential of economic hardship for life insurance companies because those most likely to receive a death benefit are the ones buying policies. This reduces profit potential. Life insurance companies attempt to counteract adverse selection by limiting coverage and/or raising premiums. Adverse selection is also called antiselection.

adverse selection

the tendency for people to enter into CONTRACTS in which they can use their private information to their own advantage and to the disadvantage of the less informed party to the contract. For example, an insurance company may charge health insurance premiums based upon the average risk of people falling ill, but people with poorer than average health will be keener to take out health insurance while people with better than average health will tend not to take out such health insurance, so that the insurance company loses money because the high risk part of the population is over-represented among its clients. Adverse selection results directly from ASYMMETRY OF INFORMATION available to the parties to a contract or TRANSACTION. Where there is hidden information that is private and unobservable to other parties to a transaction, the presence of hidden information or even the suspicion of hidden information may be sufficient to hinder parties from entering into transactions.
References in periodicals archive ?
Anti-selection, which is also known as "adverse selection," is the risk that the bad risks will roll to the side of the plate with the kinder, more generous insurers, like hot potatoes of insurance risk doom, and the good risks will end up on the side of the plate with the tougher, cheaper insurers, or roll off the plate altogether, until the spinning stops and the plate falls down.
Career agents writing for only one company will generally produce business with less potential anti-selection.
The primary concern is that allowing employees to choose from among multiple insurers' plans will exacerbate anti-selection risk.
Are policyholders subject to the risk of anti-selection if the better risks are transferred to investors?
The longer that open enrollment period is, the bigger the chance for anti-selection is," Kosloske said.
Small wonder actuaries and underwriters fear anti-selection by employees who choose to port other products.
Whether your plan offers a single or multi-pay structure, recurrence coverage, or full or partial benefits for particular conditions, the general underwriting concerns remain the same: Mitigate risk, ensure optimal spread of risk and limit anti-selection exposure.
residents' LTC needs, in part because of the difficulty of dealing with anti-selection concerns.
Dr George Parfitt, of the Birmingham branch of the anti-selection Campaign for State Education, said a fresh crusade would begin in the next two weeks to target this year's batch of eligible voters.
The proposed change in underwriting approach should allow Kaiser to remain competitive in the commercial market and reduce the company's exposure to anti-selection.
PPACA drafters tried to protect the PPACA exchange system from going down the same anti-selection drain by creating mechanisms both to lock consumers into the exchange system and push consumers toward the exchange system.
Sebelius acknowledged that the deficit commission had criticized the program but said some of the challenges could be addressed to by taking steps to avoid anti-selection.