What action can an insurer take when there is a material change in risk?

When there is a material change in risk, an insurer typically has the right to cancel the policy and return any unearned premium to the insured. A material change in risk refers to significant alterations in the circumstances or conditions that affect the likelihood or severity of a loss, which could impact the insurer's evaluation of the policy's terms.

In such cases, the insurer must reassess the policyholder's risk profile. If the new assessment reveals a heightened level of risk that the insurer is not willing to continue covering under the existing policy terms, cancellation is a common response. The insurer will then return any unearned premium, meaning the portion of the premium paid for coverage that will not be provided due to the cancellation.

Reinstating the policy without changes would not be appropriate, as a material change indicates that the risk has altered significantly. Increasing the deductible or lowering the policy limits might be options available, but these actions would typically require the insured's agreement and do not directly address the immediate action the insurer can take in response to a material change in risk.