The tendency of people with greater than average exposure to loss to purchase insurance-answer d is correct. adverse selection means the tendency of people with a greater than average exposure to loss to purchase insurance coverage. for example, if insurers only sold earthquake coverage to applicants in earthquake-prone areas, or flood insurance only to those in flood-prone areas, the situation known as adverse selection would exist. insurers and underwriters guard against adverse selection by trying to sell broad ranges of coverages to a large cross-section of the population in order to increase the premium base and spread the risk of loss.
