Triple-I's Issues Brief Explains Benefits, Addresses Misconceptions of Risk-Based Pricing in Insurance

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MALVERN, Pa.--(BUSINESS WIRE)--Oct 15, 2025--

The Insurance Information Institute (Triple-I) has published a comprehensive Issues Brief addressing common misconceptions about risk-based pricing in property/casualty insurance and warning against government intervention that could harm consumers.

Risk-based pricing, a fundamental insurance principle, means offering different prices for the same coverage level based on risk factors specific to each customer, vehicle or property. This approach allows insurers to offer the lowest possible premiums to policyholders with favorable risk factors while ensuring adequate resources to pay claims for all customers.

"Without risk-based pricing, lower-risk consumers would end up subsidizing riskier ones,” said Sean Kevelighan, CEO, 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.”

Addressing Complexity and Concerns

The report noted some confusion can arise when actuarially sound rating factors intersect with other characteristics, which critics sometimes perceive as unfair. Concerns have been raised about the use of credit-based insurance scores, location and other individual risk factors in determining premiums.

However, the data clearly supports the validity of these factors. For example, drivers with the lowest 10% of insurance scores have twice as many collision claims as those with the highest 10% of scores, according to National Association of Insurance Commissioners data cited in the Issues Brief. These factors allow insurers to accurately align pricing with risk, ensuring that premiums rain fair and financially sustainable for all policyholders.

Climate and Inflation Pressures

Triple-I highlighted how climate-related risks and inflation have further complicated insurance pricing. Areas once less vulnerable to wildfires and hurricane-related flooding are increasingly affected by costly natural disasters, while more people are moving into harm’s way in coastal communities and wildland urban interface areas.

"Insurance pricing must reflect these increased risks to maintain policyholder surplus – the funds regulators require insurers to keep on hand to pay claims," said Patrick Schmid, Ph.D., chief insurance officer, Triple-I. “Rising material and labor costs also drive premium increases. If rates don't reflect these costs, insurers risk exhausting their policyholder surplus and potential insolvency.”

Solutions Through Collaboration

Triple-I’s Issues Brief called for partnerships between insurers, governments and other stakeholders to address affordability challenges. Recommendations include:

• Modernizing building codes and incorporating resilience into infrastructure investments.
• Incentivizing homeowners to invest in mitigation and resilience measures.
• Avoiding excessive price regulation that constrains insurers’ ability to profitably write coverage.

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

About the Insurance Information Institute

Since 1960, the Insurance Information Institute (Triple-I) has been the trusted voice of risk and insurance, delivering unique, data-driven insights to educate, elevate and connect consumers, industry professionals, policymakers and the media. An affiliate of The Institutes, Triple-I represents a diverse membership accounting for nearly 50% of all U.S. property/casualty premiums written. Our members include mutual and stock companies, personal and commercial lines, primary insurers and reinsurers – serving regional, national and global markets.

About The Institutes

The Institutes® are a global not-for-profit comprising diverse affiliates that educate, elevate and connect people in the essential disciplines of risk management and insurance. Through products and services offered by The Institutes’ nearly 20 affiliated business units, people and organizations are empowered to help those in need with a focus on understanding, predicting and preventing losses to create a more resilient world.

The Institutes is a registered trademark of The Institutes. All rights reserved.

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KEYWORD: PENNSYLVANIA UNITED STATES NORTH AMERICA

INDUSTRY KEYWORD: INSURANCE PROFESSIONAL SERVICES

SOURCE: Insurance Information Institute

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PUB: 10/15/2025 11:05 AM/DISC: 10/15/2025 11:04 AM

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