What happens when an insurance company accepts a special class risk?

When an insurance company accepts a special class risk, it usually indicates that the applicant has a higher likelihood of experiencing a loss compared to the general population. This could be due to various factors such as health conditions, risky professions, or lifestyle choices that elevate their risk profile.

Because of this increased risk, insurers typically charge a higher premium to mitigate potential losses. The higher premium reflects the added level of uncertainty the insurer takes on when covering that special class risk. This additional charge is designed to ensure that the insurance company remains financially stable while still providing coverage.

This approach is a fundamental principle of underwriting, which involves assessing the risk presented by an applicant and adjusting the terms and conditions of the insurance policy accordingly. Thus, when an insurance company issues a policy to an applicant classified as a special class risk, it is standard practice for that premium to be set higher than it would be for someone deemed a normal risk.