raise its premiums to cover the losses of those with high risks, then those with low or medium risks will be

even more discouraged from buying insurance.

Rather than face such a situation of adverse selection, the insurance company may decide not to sell insurance

in this market at all. If potential buyers are to receive insurance, then one of two things must happen. First, the

insurance company might find some way of separating insurance buyers into risk groups with some degree of

accuracy and charging them accordingly, which in practice often means that the insurance company tries not

to sell insurance to those who may pose high risks. Another scenario is that those with low risks must buy

insurance, even if they have to pay more than the actuarially fair amount for their risk group. The notion that

people can be required to purchase insurance raises the issue of government laws and regulations that

influence the insurance industry.
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