At the end of last week, Connecticut Insurance Commissioner Katharine L. Wade announced that the state's Insurance Department has officially warned all property and casualty insurers against using price optimization, a controversial pricing method that, in the opinion of a few regulators and advocates, relies more heavily on consumer buying practices than sound and fact-based principles.
The practice of price optimization, also known as elasticity of demand, gives insurance companies the ability to use a wide variety of non-cost based factors to increase premiums to the highest possible amount. This would happen before consumers would have the opportunity to shop around and seek rates from other insurance carriers.
"The department views price optimization as a discriminatory practice and therefore a violation of state insurance law. It can result in two policyholders who have the same loss history and risk profile receiving two different premium increases," Commissioner Wade said in a public statement.
This new bulletin, which was issued on Friday, December 4, requires that all insurance carriers in the state of Connecticut that previously used this methodology must resubmit filings with the department and remove any and all price optimization factors within the next 60 days. If they fail to do so, the companies will be subject to disciplinary actions.
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