The state Department of Insurance today came out with a ban against a controversial pricing method that relies more on consumer buying habits than actuarial and risk-based principles. The department has officially termed it a discriminatory practice that violates state law.
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. Insurance Commissioner Katharine L. Wade said the practice can result in two policyholders who have the same loss history and risk profile receiving two different premium increases.
An Insurance Department bulletin issued today requires property-casualty carriers that use this methodology to resubmit filings with the department and remove such factors within 60 days. Insurance companies who continue to use the practice will be subject to disciplinary action.