Insureds that are less desirable than average risks and tend to seek coverage more often are known as what?

The correct answer to the question pertains to the concept of adverse selection. This term refers to the phenomenon where individuals who are at a higher risk of making a claim are more likely to seek insurance coverage. These insureds are often considered less desirable than average risks because they have a greater likelihood of needing to use their insurance due to health issues, risky behaviors, or other factors that increase their potential for loss.

In this context, adverse selection can lead to a skewed insurance pool where the insurer ends up covering more high-risk individuals than anticipated. This can be problematic for insurers, as it may result in higher claims and increased costs, ultimately affecting their profitability. Understanding this concept is crucial in risk assessment and management within the insurance industry.

The other types of risks mentioned—standard risks, substandard risks, and preferred risks—describe various categories of insureds based on their health and risk factors and do not encapsulate the broader phenomenon of adverse selection. Standard risks are average individuals, substandard risks are those deemed less desirable and therefore face higher premiums, while preferred risks are those considered more favorable and usually receive better rates.