What is anti-selection?

Answer 1

The adverse impact on an insurer when risks selected have a higher chance of loss than that contemplated by the applicable insurance rate. Also known as adverse selection. The selection of such risks is adverse because the rate is inadequate.

In other word, tendency of people with significant potential to file claims wanting to obtain insurance coverage. For example, those with severe health problems want to buy health insurance, and people going to a dangerous place such as a war zone want to buy more life insurance. Companies employing workers in dangerous occupations want to buy more worker's compensation coverage. In order to combat the problem of adverse selection, insurance companies try to reduce their exposure to large claims by either raising premiums or limiting the availability of coverage to such applicants.

Answer 2

Anti-selection refers to the situation where individuals who are more likely to incur higher costs are the ones most likely to seek insurance coverage, leading to an imbalance in the insurance pool. This can result in adverse effects on pricing and risk management for insurance companies.