By Leslie Scism of The WSJ.
This reminds me of what economists call "asymmetric information." This is a situation in which the seller knows more about a product than the buyer (sometimes the buyer knows more about something important like how healthy or risky they are as it relates to insurance). These markets do not operate optimally. If insurance companies don't know how healthy or risky you are, they can't be sure of how much your premiums should be. So they try to find other information, like your occupation, that might be correlated with your risk. My students might recall I discussed this after we played the supply and demand game in class. A good example is the used car market. Sellers usually know alot more about the product than the buyers.
I play a game in class that touches on insurance. Click here to see the Lessons From the Supply and Demand Game.
Excerpts from the article:
"California regulators are planning stiffer rules on car insurance sold through occupational, educational and other so-called affinity groups, contending some programs discriminate against low-income people."Related posts:
"the most-frequent beneficiaries of these arrangements were Californians in ZIP codes with higher average incomes, higher levels of education and a greater percentage of non-Hispanic white residents"
"About 60% of the state’s private-passenger automobile insurers offer group-discount programs, covering lawyers, teachers, scientists, engineers, public-safety workers and the military among other types of work"
" In 2017, New York’s Department of Financial Services banned use of education and occupation as factors in setting auto-insurance premiums.
Consumer advocates representing low-income people maintain that the use of education and occupation unfairly penalizes people who can least afford insurance"
"differences in rates based on job type alone could vary from 1.5% to 25%."
"Most states allow insurers to use education and occupation as pricing factors alongside age, gender, driving history, vehicle type and estimated miles to be driven, and many allow use of credit scores.
"The insurance industry maintains that education and occupation are actuarially justified, help predict the likelihood of an insurance loss and allow for more accurate underwriting and pricing."
"some actuaries speculate that people with a cautious nature are attracted to certain jobs, and those traits show up in driving. Others think highly paid people may absorb the cost of some wrecks themselves, and thus don’t file claims as frequently as poorer people."
Lose the Fat to Lower Your Insurance Rates
How Did Astronauts Of The 60s "Purchase" Life Insurance?
Should Overweight People Pay More For Health Insurance?
Should We Pay People To Adopt A Healthy Lifestyle?
'Spy car' worries raised by new Allstate patent
Should your company or insurer reward you for meeting exercise goals?
How insurance companies are using technology to better assess how risky customers might be
The EU Says Insurers Can No Longer Discriminate On The Basis Of Gender
Some History of Insurance
Companies and governments are paying people to get healthy, and it works
Social media, insurance and asymmetric information
No comments:
Post a Comment