The group life underwriting risk selection process helps protect insurers from which problem?

• A. Moral hazard
• B. Adverse selection
• C. Underpricing
• D. Lapses

Answer: (B)

The idea being tested is how group life underwriting limits adverse selection. When people know they have a greater chance of needing life coverage, they’re more likely to enroll, which can skew the risk pool toward higher-cost individuals and push up premiums for everyone. By applying eligibility guidelines, considering the group’s overall risk, and using evidence of insurability or participation requirements, the insurer shapes a more representative mix of risks. This reduces the chance that predominantly high-risk individuals flood into the plan, keeping costs and premiums reasonable for the group as a whole. Moral hazard is about how behavior changes after coverage is in place, underpricing concerns the premium level set for the policy, and lapses are about policies ending due to nonpayment or other reasons; these are not the main focus of the risk-selection process in group underwriting.