The authors of this survey study gauge the U.S. adult population's attitudes toward full risk-sharing, partial risk-sharing, and risk-based pricing in setting health, term life, auto, and flood insurance premiums. 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.

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

Lloyd Dixon, James M. Anderson

ResearchPublished Sep 5, 2024

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.

Key Findings

  • Support for risk-based pricing varies considerably across insurance settings.
  • Support for substantial subsidies is considerable. People are more accepting of using risk factors to set insurance prices when the risk factor is more under an individual's control and when the behavior is directly relevant to the risk that is being insured.
  • Support for pricing based on individual risk factors varies by demographic group: Men, older Americans, individuals in higher-income households, and White respondents tended to be more in favor of linking premiums to risk.
  • The substantial support for subsidies raises questions about the potential efficacy of relying on insurance to create incentives to mitigate the effects of natural and other hazards.

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Dixon, Lloyd and James M. Anderson, Public Attitudes Toward Risk-Based Pricing and Risk-Sharing in Insurance. Santa Monica, CA: RAND Corporation, 2024. https://www.rand.org/pubs/research_reports/RRA2872-1.html.
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This research was conducted by the Justice Policy Program within RAND Social and Economic Well-Being.

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