What best describes the risk associated with not having insurance until a significant event occurs?

The concept that best describes the risk associated with not having insurance until a significant event occurs is adverse selection. Adverse selection refers to the situation where individuals or entities that perceive themselves to be at higher risk are more likely to seek insurance coverage. This often leads to an imbalance in the insurance pool, where insurers may end up covering a disproportionate number of high-risk individuals, which can result in increased premiums for policyholders.

When individuals choose to forgo insurance until a significant risk event is imminent, they are essentially failing to spread the risk over time, which can result in higher claims costs for insurers. This behavior can cause insurance companies to raise premiums for everyone, as they may have to account for the higher likelihood of claims from those who are entering the pool late, specifically due to perceived risk.

In contrast, risk avoidance would imply taking steps to eliminate the risk entirely, controlled risk refers to actively managing and mitigating risk, while risk retention means holding onto the risk without transferring it to an insurer. Therefore, the behavior described in the question most accurately aligns with adverse selection because it involves waiting to purchase insurance until after acknowledging potential high risks, which can lead to market inefficiencies and increased costs.