Which factor can cause an adverse underwriting decision?

An adverse underwriting decision refers to a situation where an insurer denies coverage, limits the amount of insurance offered, or imposes conditions that make the coverage less favorable. The correct choice indicates that a decline of insurance coverage can indeed lead to such a decision by underwriters.

When an insurance company has previously declined coverage for an applicant, it raises red flags about that individual's risk profile. The underwriting process is heavily reliant on assessing risk, and past declines signal to the insurer that there may be significant concerns or issues that warrant caution. Underwriters use historical data and previous decisions as a major determinant of future risk, thus leading to possible adverse decisions.

In contrast, while low applicant income, high claim frequency, and a positive credit rating can also impact underwriting outcomes, they do not necessarily lead to an automatic decline of coverage. Low income may suggest financial risk but does not directly indicate higher risk of claims. A high claim frequency can result in higher premiums or coverage restrictions rather than outright declines. Lastly, a positive credit rating is generally viewed as a favorable trait, often leading to better underwriting terms rather than adverse decisions.