Survey: People Open to Higher Premiums to Subsidize Higher-Risk Individuals—Sometimes

A surprising percentage of people are open to paying higher insurance premiums to subsidize higher-risk individuals, but only when they believe a risk is outside of a policyholder’s control.

A survey of U.S. adults, conducted by think tank RAND, sought to study collective attitudes toward sharing and spreading risk. The report aimed to find out:

• In what contexts does the public support insurance premiums that are based on individual risk factors?
• How much are people willing to pay to subsidize the premiums of higher-risk policyholders?
• How does support of pricing based on individual risk factors vary across demographic groups?

The report shows roughly two-thirds of the respondents support higher insurance premiums for homes at higher flood risk. Support falls below 50% when particular details of a situation are considered. If the home is at higher risk but the owner has limited assets and low income, the percentage supporting or strongly supporting higher premiums drops to less than 40%.

For flood insurance, more than half of respondents say they prefer a pricing plan in which homeowners in low-risk areas pay $500 or $1,000 more to reduce the premiums of homeowners in high-risk areas.

“When flood insurance premiums increase in high-risk areas due to sea level rise, nearly 70% of the population believe that either the federal government should cover the increase or that homeowners in low-risk areas should pay 100 to 300% more to subsidize the premiums in high-risk areas,” the RAND survey shows.

Only 6% of respondents support higher health insurance premiums for people with certain genetic disorders, but roughly 60% support higher premiums for those who use illegal substances. The survey showed similar results for term life insurance.

The survey also shows that demographics play a part in attitudes toward subsidizing premiums. Older Americans surveyed were more in favor of pricing based on individual risk factors than younger respondents. Higher-income survey-takers tended to support linking premiums to risk factors.

“Overall, we find that attitudes toward full risk-sharing, partial risk-sharing, and risk-based pricing vary considerably within the population and across insurance settings,” the survey shows. “Premiums that vary with individual risk are not popular in many settings, and our results suggest that many people are willing to pay considerable amounts to subsidize the insurance premiums of higher-risk individuals.”