Anti-selection occurs?

Anti-selection refers to a situation where individuals who are at a higher risk of making a claim are more likely to seek insurance coverage. This often occurs in the context of health-related issues. When individuals who are in poor health are eager to buy insurance, they disproportionately represent higher-risk clients. Insurance companies rely on a balanced pool of insured individuals to maintain profitability, and if a large number of high-risk individuals purchase policies, it becomes challenging to manage risk effectively.

This concept is critical in understanding how insurance companies assess risk and set premiums. If an insurer does not adequately price the policies for those with poor health, it may face financial difficulties due to a higher number of claims than anticipated, undermining their business model.