The West Virginia Office of the Insurance Commissioner published a bulletin informing insurers that the use of price optimization is unfairly discriminatory and in violation of state law.
The OIC has heard of instances of insurers using price optimization to rate insurance policies in the state. Price optimization is the practice of using data of past consumer behavior in order to charge higher premiums. It analyzes how consumers have reacted to previous premium increases to predict how much the insurer can raise the premium before the consumer would shop for similar insurance from a different insurance company.
Price optimization methods charge premiums based on data that is unrelated to a policyholder's risk of loss, which can result in two policyholders with the same loss history and risk profile being charged different premiums.
The OIC has determined that the practice is unfairly discriminatory and in violation of West Virginia law. Insurers engaging in price optimization will face enforcement action.
The bulletin can be found here.
Ray Sugrim
Ray Sugrim is an Insurance Editor with FC&S Expert Coverage Interpretation, a division of National Underwriter Company and Arc Network. Ray is responsible for helping develop and edit content for subscribers. Ray is a St John’s University graduate with a degree in Risk Management & Insurance and is a CPCU candidate.