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November 16, 2015
‘Price Optimization’ Sets Rates
Based on Non-Risk Factors Like Shopping Habits
For Immediate Release:
SAINT
PAUL – Minnesota Commerce Commissioner Mike Rothman is ordering insurers doing
business in Minnesota to stop the practice of "price optimization" in
setting rates for auto and homeowners insurance.
Rothman said the
anti-consumer practice violates state law because it unfairly discriminates by
charging different premiums for consumers who otherwise have similar risk
profiles.
Price optimization generally
refers to the use of non-insurance consumer data, sophisticated statistical
analysis and computer models to set insurance rates, relying on factors other
than a consumer’s expected losses, expenses or risk to the insurer.
For example, rates might be manipulated
based on calculations that some consumers are more likely than others to accept
higher premiums and renew their policies rather than switch to a different
insurer.
“Using price optimization in
insurance is high-tech price gouging and it’s unfair to insurance consumers,”
said Rothman. “People’s insurance
premiums are determined by their risks and expected costs to an insurer. For
example, it’s okay for an insurance company to charge more because someone has a
bad driving record. It’s not okay to charge more because of their shopping
habits.”
Rothman
noted that certain groups, including seniors and low-income consumers, are more
likely to stick with their existing insurer and less likely to move to a
different company.
“A business might
be expected to reward its faithful customers with some kind of loyalty discount
or bonus,” said Rothman. “But insurance companies that use price optimization are
secretly and unfairly penalizing customers for their loyalty by charging them higher
premiums.”
Rothman said his agency
recently objected to a rate filing by an auto insurer that included price
optimization techniques.
Because of concerns that
price optimization is becoming a more widespread industry practice, Rothman said
he issued a bulletin today to all property and casualty insurers doing business
in Minnesota.
The bulletin
directs any insurer that currently uses price optimization to immediately stop
the practice and file a corrective action plan with the Commerce Department
within 60 days. In addition, insurance
companies must certify in all future property and casualty rate filings that
they are not using price optimization.
The
insurance bulletin is posted on the Commerce
Department website.
Commerce is here to help.
If you have questions or concerns about your insurance, or believe you have been the victim of a scam or fraud, contact the Commerce Department’s Consumer Services Center by email at consumer.protection@state.mn.us or by phone at 651-539-1600 or 800-657-3602 (Greater Minnesota).
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Media Contact:
Ross Corson
Director of Communications
Minnesota Department of Commerce
P: 651-539-1463 | C: 651-368-5050 | ross.corson@state.mn.us
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