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The risky business of insurance pricing

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Abstract

The factors influencing insurance pricing decisions are assessed using the ISO product liability ratemaking files for 1980–1984. The mean loss level has a strong positive effect on manual rates and premium rates/exposure. Evidence on a variety of ambiguity measures is more mixed. As a broad generalization, risk ambiguity lowers manual rates, which may reflect exclusion of large loss outliers as being unrepresentative. Risk ambiguity tends to have a positive effect on actual pricing decisions for particular policies, especially bodily injury lines and the interactive risk-ambiguity model.

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Authors and Affiliations

  1. Department of Economics, Duke University, 27706, Durham, NC

    W. Kip Viscusi

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  1. W. Kip Viscusi
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Additional information

This article was prepared for The Wharton School Conference,Making Decisions About Liability and Insurance, December 6–7, 1991. Richard Zeckhauser, who was the discussant of this article at the Wharton conference, and Sharon Tennyson provided a variety of insightful comments. Patricia Born provided superb research assistance. This research was supported by NSF grant SES #3321057.

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Viscusi, W.K. The risky business of insurance pricing. J Risk Uncertainty 7, 117–139 (1993). https://doi.org/10.1007/BF01065318

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