Insurers practicing price optimization could be running afoul of state law
Washington Insurance Commissioner Mike Kreidler has issued a warning to insurance companies concerning using the personal data of customers to price coverage. In a “Technical Assistance Advisory” notice sent to property and casualty insurers operating in the state, the commissioner suggested that the practice of “price optimization” is illegal throughout Washington. Price optimization is the process of using non-insurance data, as well as other information, in order to affect the cost of insurance coverage.
Price optimization may be having a major impact on the cost of insurance coverage
Price optimization has become a major concern for some state officials, as it has had a significant impact on the price of insurance coverage for many consumers and businesses. According to Kreidler, the practice is designed to target consumers that are likely to shop for new insurance products. As a result, the practice is used to raise rates on certain products in order to ensure that consumers remain loyal to a specific policy. This can lead to higher premiums, in some cases, and Kreidler suggests that the practice is “really a loyalty penalty.”
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State law prohibits insurers from using non-cost associated risks to price coverage
According to state law, premiums are required to be not excessive, inadequate, or unfairly discriminatory. Rates are also required to be based on cost associated risks. Consumers looking for other types of coverage does not necessarily equate to an increased cost to insurers, and companies raising rates in order to ensure the loyalty of policyholders may be running afoul of state laws and regulations. As such, state regulators are expected to become more aggressive with their treatment of insurers practicing price optimization.
Insurers practicing inappropriate price optimization may be pursued by state regulators
If insurers are found to be using price optimization data that is unrelated to cost and risk, they will be considered to be in violation of state law. As such, these insurers may be subject to fines and consumers that were affected by the price optimization practice may be eligible for refunds. Increasing animosity toward price optimization is not exclusive to Washington, of course, and insurance regulators throughout the country are growing more concerned about this practice in the insurance industry.