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Unformatted text preview: Also, the people most prone to floods and earthquakes are most likely to buy insurance. 9. In conditions with adverse selection, the people most prone to accident are most likely to buy insurance. This raises the incident of accident also raising the premium, so all the low risk users end up paying much more for risk that isnt theirs, subsidizing the others. 11. Separation and Class Homogeneity Grouping people with similar risks together Reliability the insurance used to classify individuals must be reliable. Incentive value Rewarding good insured and those that minimize risks with better rates. Social Acceptability It must be socially acceptable to classify based on the criteria....
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This note was uploaded on 04/10/2008 for the course MATH 422 taught by Professor Huntington during the Winter '08 term at University of Michigan.
- Winter '08