What does NOT prevent an insurer from experiencing adverse selection?

Adverse selection occurs when an insurer faces a higher risk of loss because they attract clients that are more likely to claim insurance than the average. Preventing adverse selection typically involves measures that ensure a balanced risk pool.

Underwriting every risk is a practice that can lead to adverse selection if not managed properly. It implies that the insurer accepts all applicants without sufficient filtering based on their risks. By underwriting every risk uniformly, an insurer may inadvertently welcome disproportionately higher risks into their pool, as individuals who know they pose a higher risk are more likely to seek coverage. This can lead to a situation where the insurer is left with a higher ratio of high-risk policyholders compared to those who are low risk, ultimately leading to financial instability due to increased claims.

In contrast, other options like price adjustments, thorough claim evaluations, and providing varied coverage can actively work to minimize the risk of adverse selection. Pricing risks appropriately means adjusting premiums to reflect the actual risk of each policyholder. Strict claims evaluation ensures that only valid claims are paid, which protects the insurer from undue losses. Offering multiple coverage options can diversify the risk pool, attracting a wider range of policyholders.

Thus, the action that does not inherently prevent adverse selection is the practice of underwriting every risk without sufficient differentiation