Category: Blog

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.

The availability of data for insurers has not only reduced the amount that lower-risk policy holders have to pay, it also incentivizes existing high-risk policy holders to adjust their behaviors in exchange for lower insurance costs.

Moreover, if today’s insurers are restricted from using certain risk characteristics or rating variables, large tech companies that already collect large amounts of data may make moves to enter the insurance market, leaving current insurers at a competitive disadvantage.

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

In this segment of Triple-I’s five-part video series, Dr. Charles Nyce, Associate Professor of Risk Management and Insurance at Florida State University, explains how the democratization of big data in insurance now will lead to safer behaviors and preempt higher insurance premiums down the line.

Insurance is a market just like any other good or financial product — firms compete to provide the best “product” and offer the lowest price to attract consumers.

Innovation plays the same role for insurance as it does for any other market. Restrictions on insurers’use of data will hinder risk-assessment ability and lead to artificially high premiums.

The market inefficiency created by restrictions on insurers’ ability to analyze risk data reduces the incentive for policyholders to engage in lower-risk behavior and leads to higher premiums.

Earlier in the summer, the Future of American Risk & Insurance (FAIR) campaign released a five-part video series educating stakeholders on the importance of risk-based pricing.

In this latest segment, Dr. Charles Nyce, Associate Professor of Risk Management and Insurance at Florida State University, discusses the importance of innovation in insurance markets, and how advances in data analytics for insurers will benefit society overall.