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18 Apr 13 12:16

For insurers, trends continue towards individual premiums taking into account not only individual risk factors, but also commercial factors as we are used to from the airline industry.

For those of you who fly once in a while, you know that people are paying very different prices for the same product. Airlines specialize in socalled price elasticity and relativities to competitor prices. So if you buy a last minute flight and there are few seats left, they charge you big bucks. They know that families search for flights during their weekend, so how do you think they reflect this behavior in their pricing? (my tip: Try to make your booking Tuesday evening instead of during the weekend).

If you are still with me, I will try to bridge this thought to insurance. My point is that I don't think this will not be a good direction for the insurance industry. Remember the rather noble thought behind insurance: You pay to a collective pool of money. A few get compensated from this pool. Essentially, you don't hope it is you (since it means you will have suffered a loss). Hold that thought. The many pay to the unfortunate few....

Now, things are changing. Insurers become so skilled at setting premiums that they may not want to insure certain risks - I don't think it is far fetched that an portfolio of young male drivers will end up paying twice as much in claims as is received in premiums almost no matter which price you charge. We have areas that are flooded whenever it drips - those people living can not afford to move elsewhere and insurance will take their last bucks through their "individualised" large premiums, which may be technically sound and actuarially correct, but also provides a potential for a good story about the perceived "greedy" insurers.

This is where I think insurers need to watch out. Too individualised premiums may result in a public uproar and government interventions to ensure that people can be insured at reasonable prices. The other part is the image of the industry, which in most countries is not exactly great. Insurers can provide a number of the solutions to keeping a welfare system, but they won't get the chance if politicians don't trust insurance. A good way to display a social profile as an insurance industry is to provide fairly priced (in the public eyes) insurance to people.


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