What Does Risk Appraisal Mean?
Risk appraisal is the process of assessing the likelihood of a policyholder filing a claim. Risk appraisal is used to determine premium prices for individuals applying for coverage. After the applicant's risk is appraised, they are placed into a certain risk class by the insurer and are offered insurance options that are priced accordingly.
Insuranceopedia Explains Risk Appraisal
People who represent higher risks to insurance companies will generally have to pay higher premiums. This is because they are perceived as costing more, on average and in the long run, to the insurance company. Conversely, those who are appraised to have lower risks of filing a claim will generally get lower premiums because they are viewed as less expensive to the insurer.
If an applicant's risk is deemed to be too high, they may be disqualified for life insurance and certain other types of coverage.