What is classified as a "substandard risk" in insurance underwriting?

In insurance underwriting, a "substandard risk" refers to individuals or entities that present a higher level of risk compared to the average applicant. This classification often arises from various factors, such as health issues, lifestyle choices, hazardous occupations, or past claims history that suggest a likelihood of increased claims in the future. Insurers recognize that these individuals or entities are more likely to incur losses, and as a result, they may face higher premiums or specific exclusions in their coverage.

Understanding this classification helps insurers manage their risk more effectively and maintain the overall health of their insurance portfolios. While average health conditions, lower risk entities, or those with no previous insurance history can be evaluated as standard or preferred risks, substandard risk classification specifically highlights those applicants whose circumstances lead to a statistically greater potential for loss.