Adverse selection and Moral Hazard contain similar meaning that both use insurance with malicious intent. Also, the adverse selection and moral hazard contain the information asymmetry. However, the both take different approach.
In adverse selection case, people who have high risk in certain thing, such as high risk in eyes, legs, death, etc, pay same premium with standard people and get same amount of insurance payment. Underwriting could distinguish that and set new premiums for the certain people. However, most of time it is hard an underwriter to distinguish whether he or she needs a higher premium than standard people. For example, people who play soccer 4 times a week and they plan to buy insurance with their legs. They have higher probability to be injured with their legs compare to standard people, and the people who play soccer pay same amount of premiums as the standard people pay unless the people tell that they play soccer four times a week. I do not think that is fair.
In moral hazard case, for example, people buy health insurance that covers certain amount of hospital fees if the people stay in hospital for four days or more. Let’s assume the people are injured very light, and a doctor recommends them to stay in hospital a day or two, but the people would tell the doctor that they do not feel good and want to stay two more days, so they can get insurance payments. I think because of adverse selection and moral hazard, the insurance companies’ underwriting policies becoming more complicated.
http://en.wikipedia.org/wiki/Moral_hazard
http://en.wikipedia.org/wiki/Adverse_selection
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