What does "excessive risk" refer to in insurance underwriting?

The term "excessive risk" in insurance underwriting specifically refers to a situation where the likelihood of loss associated with an insurance policy is determined to be significantly higher than what is typical or acceptable to the insurer. When a risk is classified as excessive, it often indicates that the chances of a claim being made are elevated enough to warrant adjustments in premiums or, in some cases, the outright denial of coverage.

High-risk clients can lead to greater financial exposure for insurance companies; thus, insurers may increase premiums to offset this risk. If the risk is deemed overly significant, it may not be prudent for the insurer to provide coverage at all. Underwriters utilize this classification to manage their portfolio of risk effectively, ensuring that they maintain a balanced book of business while still offering protection to policyholders who present a standard or acceptable level of risk.

This understanding underscores the importance of risk assessment within the underwriting process and reflects how insurers manage potential losses in their operations.