Regulatory activity on price optimization appears to be coming to a head. The National Association of Insurance Commissioners (NAIC) Casualty Actuarial and Statistical (C) Task Force is continuing to gather input, with all roads leading toward a significant discussion of the issue at the upcoming NAIC meeting in August 2015. In the meantime, regulator opposition continues to manifest itself, with a new bulletin from the Indiana Department of Insurance taking an even stronger tone against price optimization than the draft bulletin that preceded it.
The NAIC Casualty Actuarial and Statistical (C) Task Force is moving forward with its guidance on price optimization. Comments on the most recent version of the white paper were discussed in a Task Force meeting on July 21, 2015. The NAIC staff is now revising the white paper to take those comments into account and to create an initial draft of the final section, outlining “Recommendations and Next Steps.” Specific written proposals for regulatory recommendations are due by July 31, 2015, and the Task Force expects to circulate a new draft of the white paper in advance of the NAIC’s summer meeting. At the meeting on August 15, 2015, the Task Force will discuss recommendations, best practices, and next steps and move toward finalizing the white paper.
In Indiana, the Department of Insurance issued Bulletin 219 on price optimization on July 20, 2015. (We reported on the draft version of the bulletin earlier this year.) Bulletin 219 takes a much stronger stand against price optimization than did the draft version, establishing “the Department’s position that the use of price optimization in establishing rates is not permitted” and requiring companies using price optimization to submit a new rate filing within 90 days. The bulletin defines price optimization to include “using data collection and analysis to predict which consumers will accept higher rates without changing insurers and/or varying premiums based upon factors that are unrelated to risk of loss so that each insured is charged the highest price that the market will bear.” The Department expressed concern that insurers were shifting away from cost-based ratemaking and toward ratemaking based in part on consumers’ price sensitivity.