Triple-I speaks out in favor of risk-based pricing

A new article from Triple-I indicates that risk-based pricing allows insurers to offer the lowest premiums to policyholders with the most favorable risk factors.

The paper, Trends and outlook: risk-based insurance pricing, indicates that risk-based pricing also allows insurers to offer higher premiums for less favorable risks. Triple-I said in the report that while such a model seems “a fundamental concept,” misunderstandings “regularly confuse.”

He wrote: “This concept becomes complicated when actuarially sound rating factors intersect with other attributes in ways that may be perceived as unfairly discriminatory. For example, concerns have been raised about the use of credit-based insurance ratings, geography, home ownership and motor vehicle registries in setting premium rates. home and auto insurance. Critics say it can lead to “proxy discrimination,” with people of color in urban neighborhoods sometimes being charged more than their suburban neighbors for the same coverage.

The document refers to the US state of New Jersey, which has implemented risk-based pricing. It says in 2002 that four of the six largest insurers were not doing business in the state, with the nation’s largest insurer saying it was leaving. At the same time, it is said that 80% of drivers subsidize bad drivers.

Holly Bakke, the former New Jersey Banking and Insurance Commissioner, reportedly wrote last year, “The Legislature replaced an outdated system with a competitive system that protected consumers. In a short time, more than $170 million was returned to drivers in the form of refunds and price reductions. Today, more than 70 auto insurers compete for New Jersey drivers, and the percentage of uninsured drivers is the lowest in the nation.

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Now, Triple-I says risk-based pricing has many benefits, including accurately reflecting risk, aligning premiums paid with risk assumed, expanding coverage availability, and promoting a competitive market.

He added: “The risk-based rating concept also incorporates actuarial scoring factors such as insurance scores based on credit, geography, home ownership and motor vehicle records. These variables improve the accuracy of insurance prices for auto and home insurance.

The brief also addressed concerns about the use of gender as a grading factor. Six states currently prohibit insurers from using gender as a factor when pricing personal auto insurance. Gender and age have long been reliable predictors of the likelihood that a prospective policyholder will file an auto insurance claim. Denying insurers access to actuarially sound rating tools would force them to assess risk with less accuracy, forcing lower-risk drivers to subsidize riskier ones, Triple-I noted.

Dale Porfilio, Director of Insurance for Triple-I, said, “There is no room in today’s insurance market for unfair discrimination. In addition to being illegal, discrimination based on any factor that does not directly affect the insured risk would be bad business in today’s diverse society.

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