What happens if an insurer incorrectly classifies a risk, leading to a premium overpayment?

When an insurer incorrectly classifies a risk, resulting in the insured paying more than the correct premium, the insurer is obligated to refund the overpaid amount. This refund typically includes interest due to the insured's overpayment, acknowledging the financial impact on the insured. This practice ensures fairness and maintains trust in the insurance process, as customers should only pay premiums that accurately reflect the level of risk they present.

In this context, the other options do not align with the regulatory standards and principles of insurance practices. Retaining the premium difference would violate consumer rights, while requiring the insured to pay the remainder contradicts the principle of equitable premium calculation. Automatically canceling the coverage would create undue hardship for the insured and is not a standard response to classification errors. Therefore, refunding with interest is the most appropriate and fair outcome in case of misclassification errors by the insurer.