Ohio Warns Insurers Against Using Price Optimization in Premium Rating

Lieutenant Governor and Department of Insurance Director Mary Taylor has warned insurance companies operating in Ohio against the use of price optimization that can result in unfair discrimination.

On Jan. 29 Taylor issued Bulletin 2015-01, which says the use of price optimization violates Ohio law. The DOI said price optimization is an insurance company’s practice of varying premiums based upon factors unrelated to risk, such as whether a consumer has complained about a policy or the amount or percentage change of the consumer’s premium over prior years.

The practice enables the insurer to charge insurance consumers the highest price the market will bear, the DOI said. It represents a departure from traditional cost-based rating and can result in two insured people with similar risk profiles being charged different premiums.

Ohio law, however, requires premiums to be based on the risk that the consumer brings to the company and prohibits unfair discrimination.

“We have been actively monitoring and involved in the discussion on this topic at the national level and took steps to clearly specify our expectations of the industry. This type of unfair discrimination violates Ohio law,” Taylor said in the department’s announcement.

A National Association of Insurance Commissioners task force is looking at the practice. The Casualty Actuarial and Statistical Task Force plans to document price optimization issues and considerations in a white paper to be issued this year

Last November, the Maryland Insurance Administration issued a bulletin to insurers saying the practice is against the law in that state. The MIA said it was aware that some carriers’ rate filings incorporated price optimization but at that time it did not know the extent to which the practice was being used among insurers in Maryland.

Taylor’s action in Ohio was applauded by the Consumer Federation of America and Center for Economic Justice, which alleged in December that insurance giant, Allstate, as well as other insurers, were using non-risk-based factors to price auto insurance. The groups also urged other states to follow the lead of states like Ohio.

The Ohio DOI said all insurance companies that use price optimization techniques in the state must stop doing so and resubmit rates compliant with the bulletin no later than June 30.