Final answer:
Insurers cannot alter customer premiums, but they do have ways to reduce the amount of coverage provided. This is because the average amount individuals receive cannot exceed the average amount paid in premiums.
Step-by-step explanation:
Insurers cannot alter customer premiums, but they do have ways to reduce the amount of coverage provided. This is because the fundamental law of insurance states that the average amount individuals receive cannot exceed the average amount paid in premiums.
When insurance companies are required to sell to everyone at low prices, they may choose to withdraw from doing business in that state in order to avoid taking on high-risk or medium-risk parties. For example, in the late 1990s and early 2000s, more than 20 different insurance companies stopped doing business in New Jersey due to their attempts to keep auto insurance premiums low.
This withdrawal from doing business in certain states is one way for insurance companies to reduce the amount of coverage they provide and adjust their risk exposure.