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.
He was responding to findings which Barry Childs, CEO of Lighthouse Actuarial Consulting and CareGuage presented at the BHF conference in the Drakensberg in July showing that the medical aid industry loses R13.5 billion annually due to anti-selection pressures when cover is not mandatory.
Pricing Risks: Anti-selection: The risk that a health insurance company's pricing or benefit structure is misaligned with the market and attracts or keeps poorer risks, or repels better risks, than anticipated in the pricing.
The reason waiting periods are useful is that they help reduce the effects of anti-selection. Because a smaller percentage of employees generally participate in voluntary plans, and those employees pay a higher share of their premiums than on an employer-paid plan, the risk of anti-selection increases on a voluntary plan.
Voluntary dental plans are tougher for insurers to price and some companies won't play in the voluntary market due to employee "anti-selection," she says.
A YEAR at an inner-city English comprehensive school for anti-selection campaigner Martin McGuinness.
They have not even been privy to a worthwhile debate, as anti-selection campaigners preferred to speak of 'educational apartheid' rather than present intelligent arguments.
Research is needed both on methods to adjust quality measurement to take into account potential selection effects, and to adjust anti-selection mechanisms to take into account the nature of quality measurement.
Despite wrestling with well-founded concerns over anti-selection, privacy rights and regulatory oversight, insurers need to position themselves soon as those advances are coming more rapidly, in a cresting wave of genetic science.
"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.