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insurers can react in three ways :- pricing, marketing,
and underwriting.

In pricing, they try to find new replacement variables,
though there may not be many suitable variables
following the actuarial, operational, and social criteria.
Insurers do have incentives to create better variables ,
so they tend to be on the lookout for best available
variable. If no replacement variable are found, rates will
be leveled and subsidies created.

The effect of abolishing rating variables in a competitive
market is to create availability problems, unless there
are suitable replacement variables. Insurers may
withdraw from marketing the coverage to certain groups,
or refuse to insure them.

This most likely will produce a residual market. Residual
markets, such as assigned risk plans in automobile
insurance, exist to provide insurance to those, not
voluntarily insured. Abolition of rating variables may also
affect insurer profitability and solvency. For e.g, an

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