Triple-I Defends Risk-Based Pricing as Key to Affordable Insurance

The Insurance Information Institute (Triple-I) has released an issues brief defending risk-based pricing in property/casualty insurance, arguing that the practice ensures fairness, maintains insurer solvency, and protects consumers from unintended economic consequences.

Risk-based pricing sets premiums based on individualized risk factors tied to the customer, property, or vehicle, allowing insurers to offer lower prices to those with lower risk profiles. "Without risk-based pricing, lower-risk consumers would end up subsidizing riskier ones," said Sean Kevelighan, CEO of Triple-I. "That would force insurers to overcharge some customers and undercharge others, putting the companies' financial stability—and their ability to pay claims—at risk."

The report counters criticism that certain rating variables, such as credit-based insurance scores and geographic location, are unfair. It cites data from the National Association of Insurance Commissioners showing drivers in the lowest 10 percent of insurance scores have double the collision claim frequency of those in the highest 10 percent. Triple-I maintains that actuarially sound variables align premiums more accurately with risk, preserving fairness and sustainability.

The brief also links pricing pressure to growing external challenges. Climate change and inflation are reshaping loss exposures, with more severe weather events and rising costs for materials and labor. Patrick Schmid, PhD, chief insurance officer at Triple-I, said, "Insurance pricing must reflect these increased risks to maintain policyholder surplus—the funds regulators require insurers to keep on hand to pay claims." He added that without rate adjustments to reflect these trends, insurers could face insolvency.

Triple-I recommends collaboration among insurers, governments, and other stakeholders to improve affordability without distorting risk-based pricing models. Solutions outlined in the report include strengthening building codes, investing in resilient infrastructure, and incentivizing homeowners to adopt mitigation measures.

"Strong building codes and proactive mitigation are critical to protecting communities and keeping insurance affordable," Mr. Kevelighan said. "These measures help insurers remain financially strong so they can pay claims when disasters strike."