Filed Under:Markets, Personal Lines

Missouri's insurance czar bans price optimization

The Show Me State becomes the 17th to prohibit price optimization, which relies more on consumer buying habits than risk-based principles, for setting insurance rates. (Photo: Shutterstock)
The Show Me State becomes the 17th to prohibit price optimization, which relies more on consumer buying habits than risk-based principles, for setting insurance rates. (Photo: Shutterstock)

Missouri Insurance Commissioner John Huff announced on Tuesday that the state’s Department of Insurance has officially warned property and casualty insurance companies against using a controversial pricing method that relies more on consumer buying habits than sound actuarial and risk-based principles.

Called “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.

“Missouri law generally requires that base rates and rating classes be based on policyholder characteristics specifically related to an insurer’s expected losses, expenses, and/or policyholder risk,” Huff said in the bulletin issued by the department.

Missouri is now the 17th state to prohibit the practice of price optimization. The others are California, Colorado, Connecticut, Delaware, the District of Columbia, Florida, Indiana, Maine, Maryland, Minnesota, Montana, Ohio, Pennsylvania, Rhode Island, Vermont and Washington.

Related: Connecticut bans use of price optimization for insurance rates

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