What is a potential result of poor risk assessment in underwriting?

Poor risk assessment in underwriting can lead to a range of negative outcomes, and one significant consequence is an increase in the chances of claim denials. When underwriters fail to accurately assess the risks associated with a policyholder, they might inadvertently approve insurance policies for individuals or entities that are more likely to file claims. If the insurer later finds that the risks were underestimated or miscalculated, they may deny claims due to technicalities relating to the original assessment.

For instance, if a property is assessed as being at low risk for certain types of damages but actually has a high likelihood of loss, when a claim arises, the insurer might cite the poor initial assessment as a reason to deny the claim. This impacts both customer satisfaction and the financial stability of the insurance company, as denied claims can lead to disputes, potential legal action, and reputational damage.

In contrast, improved customer relations, lower policy premiums, and more accurate coverage terms are outcomes that typically arise from effective risk assessment and underwriting practices, rather than being associated with poor assessments.