Asymmetric information and insurance price .

Step 1. To determine the relationship between asymmetric information and insurance price. Step 2. Explanation: According to the given scenario, when there is asymmetric information in the insurance market, the insurance company will increase the premium. Asymmetric information refers to a situation where one party has more information than the other party. In this case, the people buying the insurance policies have better knowledge about their health compared to the insurance companies. This knowledge gap creates an asymmetric information problem. Step 3. As a result of this information asymmetry, people who frequently get sick and spend more on treatment are more likely to buy insurance policies. Since the insurance company cannot accurately assess the risk associated with these individuals, they raise the premium to compensate for the potential higher costs they may have to bear. Therefore, in the presence of asymmetric information, the insurance price increases.