Consumer group may have uncovered an auto insurance pricing scheme

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Advocacy groups claims to have found information regarding a pricing scheme within the auto insurance sector

The Consumer Federation of America, a prominent consumer advocacy group, has raised the alarm on what it believes to be a pricing scheme in the auto insurance sector. The organization suggests that insurers are employing a practice called “price optimization” to drive up insurance premiums for drivers. The Consumer Federation of America claims to have uncovered this practice when investigating rate filings from some of the country’s largest auto insurance companies.

Insurers may be practicing price optimization for profit

The advocacy group is now pressure the insurance departments of many states to ban the practice of price optimization. Price optimization models have been formed to increase the profits that insurers see over the year. This practice involves raising rates on coverage for policyholders that are less likely to shop for new, less expensive coverage. Such models are based on consumer shopping habits and other market trends that insurance companies have become aware of.

Some insurance companies may be unfairly discriminating against certain consumer groups

car auto insuranceAccording to the Consumer Federation of America, the use of shopping habits and certain market trends to price insurance coverage is against the laws of some states. The organization suggests that some insurers could be unfairly discriminating against some policyholders because of their socio-economic information. If this is true, some auto insurance providers could face regulatory action, depending on how severe their infractions of state laws are.

Allstate suggests allegations of price optimization and illegal use of market trends are inaccurate

Allstate, one of the companies that the Consumer Federation of America claims is practicing price optimization, claims that the allegations against it are inaccurate. The company notes that its pricing models have been risk-based for several years and the company has no plans to make significant changes to the way it prices coverage in the foreseeable future. Taking account of new trends emerging in the market has also been a standard practice throughout the insurance industry and these trends serve a major role in adequately pricing insurance coverage.

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