The term Adverse Selection is also known as Anti-Selection and Negative Selection. Adverse Selection is a term referring to a market process when undesired results happen when buyers and sellers have access to different information.

As it applies to insurance, the adverse selection problem is the trndency for:

Adverse selection occurs before the financial transaction takes place

akerlof, adverse selection

The simple answer is that both adverse selection and moral hazzard impose risk to the party. When this party is risk neutral, he or she would not be adversly affected by the risks associated with the transactions including risk of adverse selection.