Mike Rothman, Minnesota Commerce Commissioner, issued Administrative Bulletin No. 2015-3 in late November, ordering property & casualty and personal lines insurers writing policies in Minnesota to cease using “price optimization”.
Rothman described price-optimization as “high-tech price gouging,” pointing to the use of non-insurance consumer data by property & casualty insurers to determine pricing.
He stated that price optimization “violates the state law because it unfairly discriminates by charging different premiums for consumers who otherwise have similar risk profiles,” citing the rate making requirements listed under Minnesota Statutes Chapter 70A. He added that insurance companies “that use price optimization are secretly and unfairly penalizing customers for their loyalty by charging them higher premiums.”
Rothman issued the bulletin to all property and casualty insurers in the state of Minnesota to counter the growing practice of price optimization. He also warned insurers that the Department had recently rejected a rate filing by an auto insurer that used price optimization techniques; Rothman hinted that any similar filings in the future will be rejected as well.
For insurers still using price optimization in the state of Minnesota, Rothman directed that they immediately cease the adjustments and submit revised filings within sixty days from the date of the bulletin to discontinue the rating practice, and propose a corrective action plan.
Rothman additionally required that for all future rate filings in the state, a company officer or actuary of the company will be obliged to swear under oath that their organization does not use price optimization.
The bulletin says that while there is no set definition of price optimization, it generally uses factors not related to risk or expected losses as part of rate setting and includes using information about an individual or a class that indicates that person or class would be willing to pay more, and then setting higher rates for that person or class.
