Risk-based pricing — the practice of insurers charging policyholders different rates depending on their different risk characteristics — incentivizes policyholders to reduce the chance of financial harm not only to themselves, but to those around them.

For example, through risk-based pricing, policyholders are more likely to engage in safer driving practices or invest in fire prevention measures for their homes in exchange for lower monthly premiums.

The Future of American Insurance & Reinsurance (FAIR) campaign is educating stakeholders on the importance of risk-based pricing in its five-part video series.

In this final segment, Dr. Charles Nyce, Associate Professor of Risk Management and Insurance at Florida State University, explains how incentives created by risk-based pricing will lead to safer behaviors and fairer premiums.