The key argument

From a public policy perspective, insurance works better with some adverse selection.

Under adverse selection, restrictions on insurance risk classification (e.g genetic tests, gender, big data) may lead to a rise in average price and a fall in numbers insured (both usually seen as disadvantages).  But as a matter of simple arithmetic, they also lead to in a shift in coverage towards higher risks – the ‘right ‘ risks, the people who need insurance most. If this shift in coverage is large enough, it can more than out-weigh the fall in numbers insured, so that expected population losses compensated by insurance rises – that is, loss coverage rises.

Three-minute version: here.

Alternative versions: for actuaries, for economists, for lawyers, for general readers.

Videos: Example (5 mins); Objections; Youtube channel.

Teaching & presentation materials (free use, no attribution necessary): a one-page graphic; a 10-minute lecture segment ; a list of references.

Other stuff: book, journal papers, articles and talks.

loss coverage blog


no negative equity guarantees. guy thomas, no negative equity guarantee