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Risk-based pricing

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Definition Edit

Risk-based pricing

arises most commonly in insurance markets, where prices reflect the risk that an individual will experience the outcome covered by an insurance policy.[1]

Overview Edit

Risk-based pricing can improve economic efficiency by discouraging risky behavior, such as when individuals with a history of traffic accidents are charged more for auto insurance. It can also make insurance more widely available by reducing adverse selection, which occurs when only high-risk individuals enroll at a given (uniform) price.[2]

References Edit

  1. Big Data and Differential Pricing, at 7.
  2. Id.

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