July 9, 2015
OLYMPIA, Wash. – Washington Insurance Commissioner Mike Kreidler issued an advisory today to property and casualty insurers who do business in the state that they are not allowed to use discriminatory “loyalty penalty” pricing practices.
Kreidler is one of a handful of insurance regulators across the nation to put insurers on notice about what the industry calls “price optimization.” This is the practice of using data – often unrelated to insurance – to predict a customer’s likelihood of renewing a policy. Insurers use personal consumer data to predict the likelihood of renewing a policy rather than to determine the expected costs of insurance.
Often, “price optimization” is used to prevent loyal customers from receiving premium decreases based on their actual claims history and risk factors.
The National Association of Insurance Commissioners describes the practice as “a sophisticated tool based on predictive modeling intended to assist insurance companies in setting prices.”
This practice discriminates against people who don't shop around
An example is using a statistical analysis to gauge how large an increase will be tolerated before a longtime customer begins shopping around for a better deal.
"This practice discriminates against people who don't shop around, and discriminatory pricing is against state law,” said Kreidler. “It’s hard to root out loyalty penalty pricing, but our actuaries are actively watching for it.”
Kreidler explains loyalty penalty to consumers.
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Release No. 15-31