The Illinois Legislature has a bill pending in the House Rules Committee that would ban the use of price optimization by insurers. Price Optimization is the practice of setting premiums based on factors that are not tied to expected losses. House Bill 5719 was introduced on February 10, 2016, and would create a new section of the Illinois Insurance Code to prohibit any insurance company authorized to do business in Illinois from utilizing price optimization to set policy rates. The proposal follows a recent statement made by the Acting Insurance Director of Illinois, Ann Melissa Dowling, to Best’s News Service whereby the Director declined to offer guidance on the use of price optimization. The Director stated that the term “price optimization” has not been defined and that her office would not “address an undefined notion.” Through her statement, the Illinois Director made it clear that Illinois would not follow several states’ insurance departments that have taken action by bulletin over the past year to limit the use of price optimization. HB 5719 makes Illinois one of few jurisdictions, including Nebraska and Oklahoma, to consider legislation rather than an insurance bulletin, that would limit or prohibit the use of price optimization. The proposed HB 5719 defines “Price optimization” to mean: “varying rates based on factors other than risk of loss, including but not limited to: (1) the likelihood that a policyholder will engage in activities that result in policy turnover; and (2) the willingness of a policyholder to pay a higher premium compared to other policyholders.”
The proposed bill can be found here.