What next? Lower insurance rates if you are blonde, blue-eyed and of a certain ethnic background? Mandatory athletic participation? We fought a world war against this type of thinking three generations ago – a lot of people seem to have forgotten that. Yes, there will be a BIG pushback – like laws providing you cannot be penalized for engaging in a lawful activity. Let the health and fitness fanatics in the insurance industry management suites suck on that lemon.
To confuse predictive modelling with Nazi Germany is laughable.
People lead healthier and more active lives should have lower health and life insurance premiums than the person that sits around all day eating ho hos and twinkies. If you want your premiums to go down, then do something about your physical activity, or lack there of.
Former Status Quo – don’t be so nearsighted in your summing up of a population to believe that simply by eating right and working out you will have a healthy life – Just ask someone like me that suffers from chronic illness that wasn’t brought on by an unhealthy lifestyle but simple genetics….you people make sick to my stomach in thinking that everything is so easily put into neat little boxes – I have to pay higher premiums because I’m ill through no fault of my own….I wish these insurers “Programs” (yes think Socialists, Nazi’s, Progressives and Big Brother) would get out of my life and stop penalizing me for perceived bad behavior that isn’t happening – get the actuaries to do their jobs and spread that risk across EVERYONE and set your premium – beyond that it’s none of their business what I’m doing in my life or not doing. Stop and think about this also all the programs in the world aren’t going to fix the fact that at some point in everyone’s life they are going to die from something whether they ate right and worked out daily or not!
You pay higher premiums because your risk is higher. You cannot mix risks and get an accurate rate.
The people with low risk are grouped together and charged an appropriate rate for their risk. That is an example of spreading the risk. Not combining everyone alive into the same risk group. Groups must be homogeneous for insurance to work.
I agree with “Former Status Quo”. Actuaries determine rates based on statistical analysis. If blondes show a death rate at twice the rest of the population, it is correct to charge them more. We may not understand the reason for the risk factor but it doesn’t matter if it can indeed be shown to be a valid predictor of loss.
I assume anyone reading (and commenting on) this is in the industry. A true underwriter will understand. As an underwriter, I want my insurers to understand my risk to them and charge me accordingly. I don’t really care for subsidizing others’ insurance rates.
Isn’t one of the basic tenants of insurance that we each pay a smaller premium (subsidizing other’s rates) so collectively the claims are paid adequately for the greater numbers?
Yes, there is subsidization of high risks by low risks. The degree of subsidization is the issue.
At one extreme, everyone pays the same average rate. That will lead to market instability when one insurer figures out how to write the better risks and charge less than the average rate.
At the other extreme, everyone pays for their own claims, or gets a full refund for each claim free year. But that isn’t insurance, that’s ‘funding’, budgeting, or self-insurance.
One objective of higher precision in class rating is to encourage cost savings by encouraging proper risk reduction behavior by insureds. With that the entire claim pool decreases, as does the average rate and each individual risk rate.
There is something fascinating in what you said Yogi. I know you didn’t mean to say this, you were looking at the market, and that a new insurer who didn’t average would come into the market and pick up all the lower risk people essentially. That is very true. This means the following which is interesting about the people in the market.
The people demand the lower rate through the free market,
And then they condemn the free market when they either are on the other side (higher rate) or they feel bad about people on the other side, but they blame the government or regulations.
People really do have a say in this, based on how they buy.
A lot more of a say than they are willing to admit.
I personally would tend to lean toward more of an averaging. All risks weighed, and then a rate based on maintaining all. Most people wouldn’t guess that considering I definitely am a conservative. Not everyone falls into the same category though. I do see the point of this article. A friend of mine graduated and became a nutritionist many years ago. A phrase he would say was:
It used to be that the poor were much healthier, because the low cost food was stuff that was good for you. Now organic food is high cost, and it has reversed.
That sounds unrelated but it does spell a problem for giving rewards to healthier people. They really will tend to be wealthier due to our current layout for living.
If you ask me we should do an average for the health care rates.
And then subsidize healthy food instead of corn, processed foods, etc. That is why everything is loaded with corn starch which has extremely cancerous, and diabetic affects.
Those two things would probably lower costs of insurance for not just the poor, but everyone.
Subsidizing crap food is billions a year. We would just move it to healthy food. Then we would save based on healthy factors.
We could also do a mandatory healthy eating course in schools, that teaches people how to cook with organic ingredients. The cost would be somewhat high but I’m sure we could find a way to afford it.
We need new ways of looking at things, that much is a certainty.
Rates have to be actuarially sound. You cannot combine all the risks into one pool and have a rate you can defend. Risk factors must be taken into account and risks sorted accordingly. That is the only way you can get the correct premium for the risk.
If I commute 50 miles to work by car and another employee commutes 5 miles by rail or bus, they would not pay the same auto premium. Same for health.
If I work out 5x a week and eat a healthy diet with low sugar and no junk food, why would I want to subsidize a couch potato who can and does clog up their arteries and health care system. I don’t.
No. Because the rate is based on the actual risk. The insurer is charging enough to be able to cover all insureds in that group. Could some completely random event happen that causes the insurer to lose their shirt? Sure, that’s the risk the INSURER is willing to take. Or not, if they prefer to use reinsurance.
Celtica, Maybe people who are really active should pay more. Afterall, you’re at a higher risk from physically injury (breaks, sprains, etc.) that require treatment/operations. Never hear of somebody busting up a knee sitting on the couch. LOL!
Sounds like telematics for people!
What next? Lower insurance rates if you are blonde, blue-eyed and of a certain ethnic background? Mandatory athletic participation? We fought a world war against this type of thinking three generations ago – a lot of people seem to have forgotten that. Yes, there will be a BIG pushback – like laws providing you cannot be penalized for engaging in a lawful activity. Let the health and fitness fanatics in the insurance industry management suites suck on that lemon.
To confuse predictive modelling with Nazi Germany is laughable.
People lead healthier and more active lives should have lower health and life insurance premiums than the person that sits around all day eating ho hos and twinkies. If you want your premiums to go down, then do something about your physical activity, or lack there of.
Former Status Quo – don’t be so nearsighted in your summing up of a population to believe that simply by eating right and working out you will have a healthy life – Just ask someone like me that suffers from chronic illness that wasn’t brought on by an unhealthy lifestyle but simple genetics….you people make sick to my stomach in thinking that everything is so easily put into neat little boxes – I have to pay higher premiums because I’m ill through no fault of my own….I wish these insurers “Programs” (yes think Socialists, Nazi’s, Progressives and Big Brother) would get out of my life and stop penalizing me for perceived bad behavior that isn’t happening – get the actuaries to do their jobs and spread that risk across EVERYONE and set your premium – beyond that it’s none of their business what I’m doing in my life or not doing. Stop and think about this also all the programs in the world aren’t going to fix the fact that at some point in everyone’s life they are going to die from something whether they ate right and worked out daily or not!
You pay higher premiums because your risk is higher. You cannot mix risks and get an accurate rate.
The people with low risk are grouped together and charged an appropriate rate for their risk. That is an example of spreading the risk. Not combining everyone alive into the same risk group. Groups must be homogeneous for insurance to work.
I agree with “Former Status Quo”. Actuaries determine rates based on statistical analysis. If blondes show a death rate at twice the rest of the population, it is correct to charge them more. We may not understand the reason for the risk factor but it doesn’t matter if it can indeed be shown to be a valid predictor of loss.
Grabbed Flo’s little do-dad by mistake & stuck it in my….. Now what am I going to do????
Don’t run very often, don’t run at night, and don’t make any sudden stops when running.
I assume anyone reading (and commenting on) this is in the industry. A true underwriter will understand. As an underwriter, I want my insurers to understand my risk to them and charge me accordingly. I don’t really care for subsidizing others’ insurance rates.
Isn’t one of the basic tenants of insurance that we each pay a smaller premium (subsidizing other’s rates) so collectively the claims are paid adequately for the greater numbers?
Yes, there is subsidization of high risks by low risks. The degree of subsidization is the issue.
At one extreme, everyone pays the same average rate. That will lead to market instability when one insurer figures out how to write the better risks and charge less than the average rate.
At the other extreme, everyone pays for their own claims, or gets a full refund for each claim free year. But that isn’t insurance, that’s ‘funding’, budgeting, or self-insurance.
One objective of higher precision in class rating is to encourage cost savings by encouraging proper risk reduction behavior by insureds. With that the entire claim pool decreases, as does the average rate and each individual risk rate.
There is something fascinating in what you said Yogi. I know you didn’t mean to say this, you were looking at the market, and that a new insurer who didn’t average would come into the market and pick up all the lower risk people essentially. That is very true. This means the following which is interesting about the people in the market.
The people demand the lower rate through the free market,
And then they condemn the free market when they either are on the other side (higher rate) or they feel bad about people on the other side, but they blame the government or regulations.
People really do have a say in this, based on how they buy.
A lot more of a say than they are willing to admit.
I personally would tend to lean toward more of an averaging. All risks weighed, and then a rate based on maintaining all. Most people wouldn’t guess that considering I definitely am a conservative. Not everyone falls into the same category though. I do see the point of this article. A friend of mine graduated and became a nutritionist many years ago. A phrase he would say was:
It used to be that the poor were much healthier, because the low cost food was stuff that was good for you. Now organic food is high cost, and it has reversed.
That sounds unrelated but it does spell a problem for giving rewards to healthier people. They really will tend to be wealthier due to our current layout for living.
If you ask me we should do an average for the health care rates.
And then subsidize healthy food instead of corn, processed foods, etc. That is why everything is loaded with corn starch which has extremely cancerous, and diabetic affects.
Those two things would probably lower costs of insurance for not just the poor, but everyone.
Subsidizing crap food is billions a year. We would just move it to healthy food. Then we would save based on healthy factors.
We could also do a mandatory healthy eating course in schools, that teaches people how to cook with organic ingredients. The cost would be somewhat high but I’m sure we could find a way to afford it.
We need new ways of looking at things, that much is a certainty.
Rates have to be actuarially sound. You cannot combine all the risks into one pool and have a rate you can defend. Risk factors must be taken into account and risks sorted accordingly. That is the only way you can get the correct premium for the risk.
If I commute 50 miles to work by car and another employee commutes 5 miles by rail or bus, they would not pay the same auto premium. Same for health.
If I work out 5x a week and eat a healthy diet with low sugar and no junk food, why would I want to subsidize a couch potato who can and does clog up their arteries and health care system. I don’t.
Doesn’t that keep YOUR premiums from being artifically low with not enough money to pay possible claims?
No. Because the rate is based on the actual risk. The insurer is charging enough to be able to cover all insureds in that group. Could some completely random event happen that causes the insurer to lose their shirt? Sure, that’s the risk the INSURER is willing to take. Or not, if they prefer to use reinsurance.
Celtica, Maybe people who are really active should pay more. Afterall, you’re at a higher risk from physically injury (breaks, sprains, etc.) that require treatment/operations. Never hear of somebody busting up a knee sitting on the couch. LOL!