What may happen to insurance premiums as a result of high-risk underwriting decisions?

The correct answer reflects the principle that insurance premiums are directly tied to the level of risk associated with insuring a policyholder. When an underwriting decision determines that a potential policyholder is considered high-risk, this typically means that there is a greater likelihood that the insurer will have to pay out claims.

As a result of this increased risk, the insurance company is likely to raise the premiums to offset potential losses. Higher premiums serve to compensate for the greater probability of claims and help ensure that the insurer remains financially viable in the event of a significant payout. This approach is fundamental to the insurance business model, where the risk assessment conducted during underwriting directly influences the pricing of policies.

In contrast, options suggesting lower premiums or unchanged premiums do not account for the relationship between risk and cost that insurers must adhere to when offering coverage. Therefore, the understanding that premiums increase as a response to higher risk situations is crucial for anyone studying insurance principles, particularly in the context of underwriting.