Risk-based insurance pricing is a controversial topic, with many outside of the industry arguing that the practice can lead to unfair discrimination. However, the Triple-I recently released its annual “Trends and Insights” brief on risk-based pricing that argues the practice is actually beneficial to consumers.
The shifting climate is one of the challenges facing insurance actuaries when deciding how to price risk. Weather-related losses have been on the rise for quite some time, but an increase in climate catastrophes and a population shift to higher-risk areas has increased the strain on insurers in recent years.
Inflation is also an issue in setting rates. In a recent blog post, Jeff Dunsavage, senior research analyst for the Triple-I, shares that recent examples of this impact include Russia’s invasion of Ukraine and the COVID-19 pandemic. Tariffs and changes in U.S. economic policies, he says, have put even more pressure on insurers to increase rates.
These increases have met resistance from consumers, advocacy groups and even legislators who argue that these pricing practices are unfair. The Triple-I argues that the measures often take by these people and groups are doing more harm than good, and that the inability to implement rate-based pricing will lead to a depletion of insurance companies’ policyholder surpluses.
The Triple-I’s brief states: “In some states, this increased risk – combined with regulatory decisions that make it hard to raise premium rates to the levels needed to adequately meet it – has forced some insurers to make hard and undesired decisions to reduce their exposure and not write as many policies and even withdrawing from states completely. In these states, not only has homeowners’ coverage become less affordable – in some cases, it has also become less available.”
In the slideshow above, we’ll look at four things insurance customers can take away from the Triple-I’s latest bulletin on rate-based insurance pricing.
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