Connecticut Insurance Commissioner Bans Property and Casualty Carriers From Using Price Optimization
Dec 4, 2015
Connecticut Insurance Commissioner Katharine L. Wade announced in Bulletin PC-81 issued today, December 4, 2015, that the Connecticut Department of Insurance has officially warned property and casualty insurance companies against using a controversial pricing method that the agency regards as relying more on consumer buying habits than sound actuarial and risk-based principles.
Termed “price optimization” or “elasticity of demand,” the practice is described as giving insurance companies the ability to use a wide variety of non-cost-based factors to increase premiums to the highest amount before a consumer would seek to shop around with other carriers.
“The Department views price optimization as a discriminatory practice and therefore a violation of state insurance law. It can result in two policyholders who have the same loss history and risk profile receiving two different premium increases,” Commissioner Wade said.
“A consumer’s propensity to shop for insurance or complain about rates are some examples of price optimization data points being used around the country,” she added. “These are not acceptable rating factors in determining premiums and will not be permitted in Connecticut.”
Bulletin PC-81 requires property casualty carriers that use this methodology to resubmit filings with the Connecticut Department of Insurance and remove such factors within 60 days.
“Insurers that fail to do so and are later determined to have used price optimization or elasticity of demand or failed to disclose such use to the Commissioner may be subject to disciplinary action,” the Bulletin states.
The Connecticut Department of Insurance explained that its action is consistent with research and recommendations included in a recent National Association of Insurance Commissioners White Paper on price optimization.
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