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Insurers prep defense of risk-based pricing as lawmakers mull equity measures

The U.S. property and casualty insurance industry is preparing to defend its underwriting practices amid a nationwide wave of legislative measures intended to address social justice and inclusion issues that erupted out of protests in 2020, the head of one of the largest trade groups said.

Writers of home and personal auto insurance have previously objected to state and federal measures to prevent carriers from tying premium rates to gender, socioeconomic indicators such as education and credit scores, and place of residence, a factor that can lead to higher rates being levied in neighborhoods primarily occupied by minorities.

Calls for social justice reform following the death of George Floyd have subsequently trained regulatory attention on the P&C sector's methods of pricing insurance policies according to risk, said David Sampson, president and CEO of the American Property Casualty Insurance Association, or APCIA. The industry needs to take seriously its role in producing positive social change for racial equity and inclusion, and the APCIA has assembled a working group to help with that cause, Sampson said during a webinar on insurance regulations.

Consumer activists have assailed the P&C sector's underwriting methods by highlighting disparate impacts, and the industry will need to educate the public and lawmakers about the importance of pricing policies based on risk, he said.

Sampson cautioned that there will be "even more challenges" in 2021. The trade group is expecting serious initiatives in 29 states to ban underwriting practices that have been "well-established, actuarially sound and have been the basis for industry underwriting for decades," he said.

Glenn Westrick, senior vice president of Travelers Cos. Inc., said the industry will have to explain to a new set of legislators and regulators how heavily regulated policy writing already is at state level, and it will need to make that case delicately given the social backdrop.

"There's going to be questions about pricing, and we're going to have to be prepared to discuss that in a rational manner so that the market discipline that risk-based pricing brings can continue," he said.