Post a reply on how you feel about the discussion below dver

Post a reply on how you feel about the discussion below.

dverse selection is a situation where a buyer or seller has more information about the quality of a product which in turn leads to an imbalance in the wanted and unwanted buyers or sellers. A generic example of adverse selection is a case where an apartment seller knows much more about the surroundings, issues with respect to basic water and electricity supply or other infrastructure issues. While so much information will not be with the buyer and therefore buyer will be at loss on account of the same.

            Adverse selection is most frequently used in health insurance sector. Here, the case is different as the buyer has more information about himself than the seller. The success of a health insurance depends on the mortality rate of the buyers. Healthier buyers would mean less mortality rate and hence benefit for the insurance companies. Imagine a situation where insurance companies offer the same premium to all buyers irrespective of their health situation or any unwanted medical condition, a habit like Smoking, drinking etc. In such a case, buyers with poor health condition will tend to buy more insurance policies. More insurance policies bought by poor health condition buyers would mean high mortality rate and hence losses for insurance companies. On the other hand, the buyers with good health will abstain from buying policies which will further reduce the profits of the insurance policy and it may lead to negative disruption in the health insurance industry.

            To manage this situation and minimize the impact of adverse selection, worldwide insurance companies adopt a policy of differential pricing for premiums. For each health condition or impacting habit, companies charge an additional charge over the regular premium to ensure that buyers with good health condition find a value in buying health insurance at a lower premium and there is sufficient cushion for companies to manage buyers with a poor health condition. This ensures there is a balance between both kinds of buyers.

Solution

Answer : After reading the given discussions I am feeling great for insurance company\'s new policy adoption rule by which there is maintaining a balance between good health policy buyers and bad health policy buyers in the insurance company. By this new insurance policy rule adoption both good health policy buyer and poor health policy buyer and the insurance company also becomes profitable. So, according to my opinion, the new policy adoption rule decision is the best decision by which all becomes profitable .

But I am not feeling good for apartment selling discussion. Because here sellers becomes profitable by selling the apartment where the buyers are facing loss after buying because of adverse selection. According to my opinion, it would be great if sellers inform buyers about the apartment issues and give some discounts on those parts of apartment and then the decision will be taken by buyers to buy the apartment or not. I am sure because of discounts on issues related areas the buyers will be ready to buy as overall price level will be lower than other apartment\'s price level. Thus, both buyers and sellers will be profitable and there will be a balance between them.