CID: News Releases (12/04/2015) - Insurance Commissioner Bans P&C Carriers From Using Price Optimization

{Connecticut Insurance Department}
Insurance Department
Katharine L. Wade
Donna Tommelleo
December 4th, 2015

Insurance Commissioner Bans P&C Carriers
From Using Price Optimization

Warns against pricing practices that reflect consumer buying habits

Insurance Commissioner Katharine L. Wade today announced that the Department has officially warned insurance companies against using a controversial pricing method that relies more on consumer buying habits than sound actuarial and risk-based principles.

Termed “price optimization” or “elasticity of demand,” the practice gives 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,” the Commissioner said. “These are not acceptable rating factors in determining premiums and will not be permitted in Connecticut.”

Insurance Department Bulletin PC-81, issued on December 4, 2015, requires property casualty carriers that use this methodology to resubmit filings with the Department 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 Department’s action is consistent with research and recommendations included in a recent National Association of Insurance Commissioner’s white paper on price optimization.

About the Connecticut Insurance Department: The mission of the Connecticut Insurance Department is to protect consumers through regulation of the industry, outreach, education and advocacy. The Department recovers an average of $4 million yearly on behalf of consumers and regulates the industry by ensuring carriers adhere to state insurance laws and regulations and are financially solvent to pay claims. The Department’s annual budget is funded through assessments from the insurance industry. Each year, the Department returns an average of $100 million a year to the state General Fund in license fees, premium taxes, fines and other revenue sources to support various state programs, including childhood immunization.
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Content Last Modified on 12/4/2015 9:05:35 AM