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Trends and Insights: Risk-Based Pricing of ̽��ѡ

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“Risk-based pricing” is a basic insurance concept that might seem intuitively obvious when described – yet misunderstandings about it regularly sow confusion and spark calls for government intervention that would likely do consumers more harm than good. Simply put, it means offering different prices for the same level of coverage, based on risk factors specific to the insured person or property.

If policies were not priced this way, lower-risk drivers would subsidize riskier ones.

Confusion ensues when actuarially sound rating factors intersect with other attributes in ways that can be perceived as unfairly discriminatory. For example, concerns have been raised about the use of credit-based insurance scores, geography, home ownership, and motor vehicle records in setting home and car insurance premium rates. This confusion is understandable, given the complex models used to assess and price risk. To navigate this complexity, insurers hire teams of actuaries and data scientists to quantify and differentiate among a range of risk variables while avoiding unfair discrimination.

Policymakers naturally want to do something to address the impact of rising costs on their constituents. A good start would be to help reduce risk by modernizing building codes and incorporating resilience into their infrastructure investments.

There are many ways in which lawmakers can help reduce insurance costs and drive investment in resilience. Inserting themselves into insurance pricing isn’t one of them. Triple-I would be happy to help them strategize on constructive solutions.

(As of October 15, 2025)