Consumer group: states should ban insurance pricing tactic

A national consumer group said Monday it's time for insurance regulators to ban an insurance pricing tactic that charges loyal customers more because the company believes they are less likely to shop around.

The Consumer Federation of America has been strongly critical of "price optimization" in insurance. The group says it's a relatively new way of setting premiums that relies on data mining to measure whether a customer is likely to stay with the same insurer, even when it charges more.

CFA said the result is that people with the same driving record and risk profile are charged different premiums by some companies. Consumers who are likely to shop around are given a better deal, while those who tend to be loyal to a company will be charged more, according to CFA.

The National Association of Insurance Commissioners  "should take the clear position that price optimization cannot be squared with consumer protections against unfair discrimination and must be banned," CFA said.

J. Robert Hunter, CFA’s Director of Insurance and a former Texas Insurance Commissioner, told The Atlanta Journal-Constitution that CFA has called on Georgia Insurance Commissioner Ralph Hudgens to take action, to no avail.

Georgia Insurance Commissioner Ralph Hudgens

"We have, over the last two years, sent several letters to the Georgia commissioner, who has never responded," Hunter said. "Ten states have now banned price optimization and quite a few others are actively considering it."

The ten to ban the practice include Maine, Indiana, Washington, Florida, Maryland, Ohio, California, Vermont, Pennsylvania, and Washington, D.C., according to CFA.

"The purpose of price optimization is to extract as much profit as possible from policyholders who are often required to purchase insurance policies," said CFA, a national organization of more than 250 nonprofit consumer groups.

Hudgens' office told the AJC on Tuesday that the Georgia Department of Insurance "has not approved any insurance policies that included price optimization."

"The Department has, in fact, required companies to remove price optimization from proposed rating plans," the department said in a statement.

AJC reporters Carrie Teegardin and James Salzer reported in June that Georgia topped the national rankings for increases in the price of auto insurance. 

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About the Author

Carrie Teegardin
Carrie Teegardin
Carrie Teegardin is on the investigative team. She is a graduate of Duke University and has won numerous national journalism awards.