Triple-I: Risk-Based Pricing Results in Competitive Markets


For immediate release
Contact: Loretta Worters Insurance Information Institute (Triple-I), 917-208-8842,

NEW YORK, Sept. 13, 2022 -- Risk-based pricing – a method insurers use to set prices based on the risk they assume – allows insurers to offer the lowest premiums to policyholders with the most favorable risk factors, while at the same time offering higher premiums for less favorable risks, according to an Issues Brief released today by the Insurance Information Institute (Triple-I). 

“Risk-based pricing has many benefits,” said Dale Porfilio, FCAS, MAAA, Chief Insurance Officer, Triple-I. “The price reflects risk, helps align premium paid with risk assumed, expands availability of coverage and promotes a competitive marketplace.”

The risk-based pricing concept also incorporates actuarially sound rating factors such as credit-based insurance scores, geography, home ownership and motor vehicle records. These variables improve the accuracy of insurance prices for auto and homeowners insurance, Triple-I’s Issues Brief explained.

“Confusion around insurance pricing is understandable, given the government-regulated models used to assess risk,” added Porfilio. “To navigate this complexity, teams of actuaries and data scientists are hired by insurers to quantify and differentiate among a range of risk variables while avoiding unfair discrimination.”  

The Triple-I’s Issues Brief noted algorithms and machine learning hold great promise for ensuring equitable insurance pricing, but research has shown these tools also can amplify any biases in the underlying data. The actuarial profession continues to research and attempt to address these concerns, the Issues Brief stated.

The Brief also addressed concerns regarding the use of gender as a rating factor. Six states currently ban insurers from using gender as a factor when pricing personal auto insurance. Gender and age have long been reliable predictors of the likelihood a prospective policyholder will file an auto insurance claim. Denying insurers access to actuarially sound rating tools would force them to price risk less precisely, causing lower-risk drivers to subsidize the riskiest ones, the Triple-I noted.

“There is no place in today’s insurance market for unfair discrimination,” Porfilio stated. “In addition to being illegal, discrimination based on any factor that doesn’t directly affect the insured risk would be bad business in today’s diverse society.”

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