The Insurance Industry

Paper Summary:

This paper explains that, despite the ads for certain type of insurance, especially automotive and home insurance, which tend to feature low prices, there is a rigid pricing structure for most insurance because the pricing is dictated by underwriters, who assess, evaluate and then provide a statistical judgment about the costs, benefits and risks to the insurer. The author points out that insurance companies purposely set premiums and describe benefits so that no two policies are alike thus comparisons are difficult. This paper stresses that what needs to be addressed, in terms of insurance pricing, is the underwriters of a purchase.

From the Paper:

"A Saturn automobile buyer is given one price for the model and options he selects, regardless of his age, family size, or health. No salesman would ask him (or her) about driving record, number of annual miles traveled, etc. I need to know to provide the proper coverage at the quoted price. Of course, there are certain layers of pricing and different types of insurance. But, insuring the life of a 50 year old smoker could no possibly be offered at the same price as a policy for a 25-year old non-smoker. Risks affect pricing. There are also cases where price rigidity may vary among companies, or even within a company, depending on loading, the amount added for other expenses, profits, and contingencies."

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