What is a primary risk associated with distressed risks?

The correct answer highlights a key characteristic of distressed risks, which often involve situations or entities that are already experiencing financial difficulties or operational challenges. In these cases, the likelihood of claims increases as the insured may have existing vulnerabilities that could lead to further losses.

For instance, distressed businesses might be struggling due to economic downturns, inadequate management, or unforeseen circumstances, making them more prone to incidents that could necessitate filing claims. As a result, underwriters recognize that insuring such risks carries a higher probability of claims being made, which affects how they assess and price these risks.

The other options do not appropriately correlate with the concept of distressed risks. Lower insurance premiums typically do not apply, as the higher likelihood of claims often results in elevated premiums. Greater acceptance by insurers is unlikely because distressed risks may be flagged for closer scrutiny or outright rejection due to their potential for loss. Reduced underwriting requirements generally do not occur with distressed situations, as insurers usually impose stricter scrutiny and conditions to mitigate their risks associated with insuring such policies.