In insurance terms, what is a situation where a disproportionately high number of claims are made by insureds called?

The situation where a disproportionately high number of claims are made by insureds is referred to as adverse selection. This concept occurs when individuals with a higher risk of experiencing a loss are more likely to seek insurance coverage than those who present a lower risk. As a result, the insurance pool becomes skewed, leading to higher claim rates than anticipated by the insurer.

Adverse selection often arises when there is asymmetric information, meaning that the insurer cannot accurately assess the risk posed by a potential policyholder. Those who know they are at higher risk are more inclined to purchase insurance, while those who believe they are at a lower risk may opt not to buy coverage. Over time, this can result in increased premiums for all insured parties, as the insurer has to cover the higher-than-expected claims from the riskier segment of the insured group.

Understanding adverse selection is crucial for insurance companies as they seek to design policies and set premiums that adequately reflect the risk posed by their insureds while maintaining a financially sustainable business model. In contrast, the other concepts in the question, like risk pooling, premium loss, and moral hazard, relate to different insurance principles and do not specifically address the scenario of high claims from a particular group of insureds.