What action does an insurer often take when a policy application reveals high-risk activities?

What action does an insurer often take when a policy application reveals high-risk activities?

• A. Automatically approve the application
• B. Provide a discount on premiums
• C. Decline the application or adjust premium rates
• D. Limit coverage terms

Answer: (C)

When an insurer reviews a policy application and identifies high-risk activities, it often decides to either decline the application or adjust the premium rates. This approach is grounded in the principle of risk management, where insurers assess the potential for claims based on the policyholder's activities. High-risk activities are associated with a greater likelihood of incidents resulting in claims, which directly influences the insurer's exposure to loss. Declining an application may occur when the risk is deemed unacceptable according to the insurer's underwriting guidelines. Adjusting premium rates serves as a means for the insurer to compensate for the increased risk, ensuring they can cover potential losses while still providing coverage to the applicant. By implementing either of these actions, insurers effectively balance their need to maintain profitability while managing risks associated with insuring individuals engaged in high-risk pursuits.

When an insurer reviews a policy application and identifies high-risk activities, it often decides to either decline the application or adjust the premium rates. This approach is grounded in the principle of risk management, where insurers assess the potential for claims based on the policyholder's activities. High-risk activities are associated with a greater likelihood of incidents resulting in claims, which directly influences the insurer's exposure to loss.

Declining an application may occur when the risk is deemed unacceptable according to the insurer's underwriting guidelines. Adjusting premium rates serves as a means for the insurer to compensate for the increased risk, ensuring they can cover potential losses while still providing coverage to the applicant. By implementing either of these actions, insurers effectively balance their need to maintain profitability while managing risks associated with insuring individuals engaged in high-risk pursuits.