Risk-Based Pricing: Advancing Customer Fairness and Financial Empowerment

WHAT IS RISK-BASED PRICING?

Insurers recognize that no one wants to pay more for insurance than they should. That is why insurers are committed to using a wide variety of objective data that has been proven to accurately predict an individual’s likelihood of filing a claim and the cost of claims. Insurers price policies based on expected future costs across a large, diverse population of drivers. Although the pricing mechanism is complicated, the goal is very simple: Price each policy according to its expected costs. The best—and most fair—way to price policies is to use a large number of actuarially sound and predictive driving and non-driving rating variables, known as “risk-based factors.”

HOW DO YOU BENEFIT?

  • Fair, Lower & Accurate Rates
  • More Choices in the Market
  • Less Risky Do Not Subsidize the Riskier

HOW THE INSURANCE INDUSTRY IS HELPING

Right now insurers are implementing new practices that make auto insurance more affordable like making it easier to shop for the best rates, working to ensure cautious drivers benefit from lower rates, and undertaking cost control measures. Insurers also are partnering with federal, state, and local policymakers to improve community and traffic safety as an important step to reduce these losses. However, the work is not complete, and insurers are working to increase insurance access and affordability for all communities—and to listen to their customers. Insurers also work to reduce all accidents and costs by supporting highway safety laws, reducing distracted driving, and lowering litigation and vehicle repair costs.

THE DATA

  • Studies prove that risk-based pricing accurately predicts loss, reduces costs and prevents subsidization.
  • Actuarial science proves risk-based pricing gives consumers the fairest rates.

HOW IS THIS REGULATED?

Insurance rates are subject to a comprehensive regulatory framework and undergo rigorous and continuous review by state regulators. Insurers follow strict state rate setting laws, which require rates to be adequate, not excessive, or unfairly discriminatory. Data and actuarial science to support rating plans are supplied by the companies to regulators to demonstrate the predictive nature of pricing tools.