What does an insurer commonly do when faced with high-risk applicants?

When insurers assess high-risk applicants, they typically respond by increasing premiums or opting to refuse coverage altogether. This approach is based on the fundamental principle of risk assessment in underwriting. High-risk applicants pose a greater likelihood of filing claims, which translates into potential losses for the insurer. To mitigate this financial risk, insurers adjust pricing to reflect the increased likelihood of claims.

By increasing premiums, the insurer attempts to balance the potential for loss due to claims against the income generated from premiums. In some situations, if the assessed risk is deemed too high even with increased premiums, the insurer might choose to decline coverage entirely, as it could be unfeasible for the company to take on that risk with its standard policies.

Thus, the action of raising premiums or refusing coverage is a risk management strategy aimed at maintaining the insurer's financial health while ensuring that coverage is offered in alignment with the risks involved.