Public Attitudes Toward Risk-Based Pricing and Risk-Sharing in Insurance

In this research, the authors survey a representative sample of U.S. adults to gauge the public's attitudes toward full risk-sharing, partial risk-sharing, and risk-based pricing in setting health, term life, auto, and flood insurance premiums. At one end of the spectrum, insurance can be priced without restriction based on an insurer’s best estimate of the risk posed by the insured individual. At the other, the collective costs can be pooled so that individuals pay the same regardless of their risk. In the latter case, low-risk policyholders cross-subsidize high-risk policyholders. Critical to understanding pressures to price at various points across this spectrum are public attitudes toward pricing based on individual risk factors and cross-subsidization.

Support for full risk-sharing, partial risk-sharing, and risk-based pricing varies considerably within the population and across insurance settings. Premiums that vary with individual risk are not popular in many settings, and results suggest that many people are willing to pay considerable amounts to subsidize the insurance premiums of higher-risk individuals.

Findings have implications for public policy in insurance regulation and the role that insurance can play in mitigating the effects of natural and other hazards.