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Imagine a California disaster preparedness program that subsidizes seismic insurance premiums, to help homeowners living...

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Accounting

Imagine a California disaster preparedness program that subsidizes seismic insurance premiums, to help homeowners living in earthquake prone areas afford the coverage. Critics say such insurance is unsustainable financially, due to what they call adverse selection. They argue that only those homeowners who live in highest earthquake-risk areas, and who are least willing to pay for seismic upgrades to their own homes, will be interested in obtaining the coverage. Would these critics application of the adverse selection concept be appropriate? Why or why not?

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