Which of the following actions can an insurer take when they discover a material misrepresentation?

When an insurer discovers a material misrepresentation, they have the authority to cancel the policy immediately. A material misrepresentation refers to a false statement provided by the policyholder that significantly impacts the insurer's decision to provide coverage or the terms of the policy. Because these misrepresentations can alter the risk assessment, insurers are compelled to take action to protect their financial interests. Canceling the policy allows the insurer to mitigate risks associated with the inaccuracies presented at the time of application.

Other potential actions like offering a reduced premium, providing additional coverage options, or increasing the deductible may not appropriately address the fundamental issue of misrepresentation. These options typically indicate a willingness to continue coverage under slightly altered terms rather than addressing the serious nature of a material misrepresentation. Thus, these actions are not aligned with the responsibilities of the insurer when faced with significant misinformation that impacts the underwriting process.