The Missouri Department of Insurance recently sent out a notice among insurers in the state, announcing the prohibition of price optimization; this marks Missouri as the seventeenth state to ban the practice.
The state regulator reasoned that price optimization infringes state law regulating property and casualty insurance. According to state legislation, insurance rates must be set based on the insurer’s expected claims, cost of operating business, and the risk profile of the customer.
Price optimization, or the “elasticity of demand,” is the practice of using data to identify which consumers are least likely to cancel or switch to another insurer following an increase in premiums. Those consumers identified are then charged higher prices.
Consumer advocates have derided price optimization as unfair and discriminatory, considering the practice as another form of price gouging.
In recent years, insurers have become better at analyzing consumer data thanks to technology such as the Internet. As data gathering techniques improved, it became much easier for insurers to use the information to their advantage.
Consumer advocates advised consumers not to be complacent with their policies and to always shop for better deals whenever the opportunity presents itself.
