Canadian Accredited Insurance Broker (CAIB) Two Practice Exam

What is a common consequence for underwriters accepting high-risk policies?

1. Increased premium rates

2. Improved coverage options

3. Lower deductibles

4. Reduced underwriting process

The correct answer is: Increased premium rates

When underwriters accept high-risk policies, a common consequence is the implementation of increased premium rates. This is because high-risk policies typically present a greater likelihood of a claim being filed. Insurers need to mitigate their potential losses which they do by charging higher premiums to ensure that they can cover the anticipated costs associated with the higher risk of insuring those clients. Implementing increased premium rates helps insurers maintain their financial stability, as well as ensures that they can adequately pay for any claims that may arise from high-risk insured individuals or businesses. This process is essential to the sustainability of the insurance market and helps balance the risk posed to the insurer with the policyholder's financial contribution. The other options do not typically align with the consequences of insuring high-risk policies. Improved coverage options, lower deductibles, and a reduced underwriting process are generally not features associated with high-risk scenarios due to the increased potential for loss, which necessitates more careful consideration and often less favorable terms for the insured.