What type of decision is classified as an adverse underwriting decision?

Prepare for the North Carolina Property and Casualty State Exam. Use flashcards and multiple choice questions with hints and explanations. Boost your exam readiness!

An adverse underwriting decision refers to a situation where an insurer takes an action that results in less favorable terms for an applicant or a policyholder. This includes actions that deny coverage or significantly alter the terms of coverage in response to the risk associated with an applicant.

In the given scenario, rejecting an insurance application clearly fits this definition, as it signifies that the insurance provider has determined that the applicant does not meet their underwriting standards or that the risk presented is too high. Such a rejection can occur for many reasons such as poor credit history, a high number of prior claims, or other risk factors.

Charging a higher rate due to increased hazard represents an adjustment to the premium but does not equate to a rejection of coverage. Similarly, charging a standard premium and offering a discount for good driving history are both positive underwriting decisions that imply acceptance of the risk, albeit under different circumstances. Thus, the only choice that definitively represents an adverse underwriting decision is the one that involves rejection of an application.

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