The Future of American Risk & Insurance (FAIR) is taking our subscribers back to school this week to understand how lower-risk policyholders subsidize higher-risk policyholders in markets where the risk-based pricing of insurance products is either discouraged or disallowed.

In this initial segment of what will be a FAIR video series, Dr. Charles Nyce of Florida State University (FSU) explains how insurers’ rigorous data analysis allows them to understand the risks they are assuming on behalf of a policyholder and then price accurately the policies insurers sell. Both criteria must be met for risk-based pricing to exist.

Given the close regulatory scrutiny insurers face, the cost of insurance policies in the U.S. are neither excessive, inadequate, or unfairly discriminatory, he notes, while stressing risk-based pricing is essential to make sure lower-risk policyholders pay less.

Dr. Nyce is FSU’s Tallahassee, Fla.-based Robert L. Atkins Associate Professor of Risk Management and Insurance. In addition, he is the Associate Director for the Center for Risk Management Education and Research in the Department of Risk Management/Insurance, Real Estate and Legal Studies at Florida State University’s College of Business.

The video segment can be accessed below. For more information and resources, visit fairinsure.org