Best’s News & Research Service - January 07, 2016 04:20 PM (EST)
Illinois Insurance Regulators Decline to Take Action on Price Optimization, Draw Fire From Consumer Groups
SPRINGFIELD, Ill. //BestWire// - Illinois Acting Insurance Director Anne Melissa Dowling is drawing fire from consumer groups after saying her office would not offer its own guidance on how to address the use of price optimization by insurers in setting premiums.
Dowling’s office said it would not follow the pattern set other jurisdictions in limiting or eliminating the use of price optimization because no specific definition of what price optimization is actually exists. But the Consumer Federation of America and the Center for Economic Justice are asking her to reverse what they describe as a “do-nothing position” on price optimization.
“The use of non-cost data to set insurance prices is unfair discrimination in violation of Illinois unfair competition laws,” said J. Robert Hunter, the CFA’s director of insurance and a former Texas Insurance Commissioner. “Dowling’s abdication of her responsibility to protect consumers is bad enough, but her justification — that there is no ‘agreed-upon’ definition — is nonsense. While insurers have tried to muddy the waters with such claims, the offensive practice is crystal clear — there is no dispute at all that price optimization based on personal consumer data having nothing at all to do with insurance risk measurement harms consumers and undermines competition.”
Price optimization has long been used by insurers to help set insurance premiums, but recently regulators have become concerned about whether insurers are using non-risk-based factors — including the so-called “price elasticity of demand” that is used to determine how much of a price increase a policyholder will tolerate before shopping to change insurers. Commissioners from 16 states have issued bulletins within the past 18 months seeking to limit price optimization use, while a 17th jurisdiction — the District of Columbia — seeks to ban its use completely. The most recent bulletins, such as one from Alaska, declared price optimization as it is applied to non-risk-based factors, particularly price elasticity of demand, to be discriminatory (Best’s News Service, Dec. 22, 2015).
Hunter said Illinois’ position is unique as the first of those he has spoken to who said it would take no action to address price optimization.
Dowling said in a statement to Best’s News Service Illinois would continue to review all pricing models to assure no illegal discrimination, regardless of moniker on the practice. She contested the CFA’s research claims that Illinois drivers must contend with unfair practices by automobile insurers.
“Illinois has a highly competitive auto and homeowners’ insurance market as measured and scored by objective national organizations,” Dowling’s statement said. “I would be delighted to host any members of the consumer organizations to visit with me, in person, to share the data they cite as it is inconsistent with what I have reviewed.”
The CFA claimed its studies during the past three years revealed several inequities for insurance consumers in Illinois. Good drivers living in predominantly African-American neighborhoods in the Chicago region are charged 23% more for basic liability insurance than drivers in predominantly white neighborhoods in the Chicago area, even when adjusting for income and density, it said. Single or widowed women with perfect driving records in Chicago are charged up to 21% more for basic coverage than married women living in the city with similar records, it said, noting one insurer charged a good driver with a low credit score up to 123% more for basic insurance than a driver with a high credit score; and that three other companies offer not discounts for low-mileage policyholders.
Birny Birnbaum, of the Center for Economic Justice, said Dowling was telling consumers to shop around, which he said was “a huge cop-out.” He said insurers use price optimization in the state successfully is because the market is not competitive and allowed insurers to charge more than cost-based prices after using non-insurance personal data to price insurance. “If consumers had the market power to discipline insurers, there wouldn’t be price optimization in the first place,” he said in a statement.
(By Thomas Harman, Washington Bureau manager, BestWeek: Tom.Harman@ambest.com)