One of the toughest parts of running an insurance company is setting premiums. We won’t know the “cost of goods sold” until months or years after we accept a member, and our results are dependent upon weather patterns, gas prices, court cases, new regulations and other unpredictable factors. As our team of actuaries and product management professionals evaluate changes to the design of our products or the actual rates we charge, here are some principles we ask them to follow:
1. We will price to achieve long-term sustainability, not to maximize profit.
On average, members have saved over 20% when switching to PURE. Our model should always allow us to continue to offer highly competitive rates while allocating operating gains to Subscriber Savings Accounts. If the rates appear adequate to cover all of our expenses, projected loss costs and cost of reinsurance, we should not be concerned if they are lower than our competitors.
2. We will seek to match the price we charge to the risk of loss we bear for the membership.
We will use data and analytics to better understand the various risks and work to reduce subsidization amongst members. Those who deserve a lower rate should receive one, while those who present a greater likelihood of loss should pay more to reflect the increased risk to PURE.
3. We will never charge a new member less than we charge a renewing member with the same risk characteristics.
If we ever have to raise rates significantly, we will ask regulators to allow us to immediately increase rates for new members and phase in the increase over time for existing members whenever possible. We must remember that loyalty is rewarded at PURE, as members cease to pay surplus contributions at their fifth renewal (typically saving more than $700 each year thereafter). Regardless of their popularity in our industry, we will not use special incentives that offer new members a lower price than an existing member.
4. We aim to reduce pricing volatility.
By regularly adjusting rates to keep up with loss trends, including the cost of building materials, labor, health care, automobile repairs, and other drivers of claims costs, we can reduce the likelihood of sharp rate increases.
5. We will be transparent with members regarding changes to their premium.
Members value transparency. Premium calculations can be complicated, but we should clearly outline the factors contributing to a change in premium. When an increase does occur, we should offer members and their brokers guidance on ways they can help reduce the cost of their insurance.
6. We will carefully select members, underwriting only those individuals who display a track record of responsibility.
We are going to stick with our expertise to serve the most responsible and successful individuals and families. If we do not think that we can charge an adequate premium for a prospective (or current) member, we should simply not offer coverage rather than risk driving up the cost for everyone else. This discipline is critical in helping to keep premiums low for the whole membership.