Sept. 03--Pennsylvania has become the eighth state in the nation to officially warn insurance companies against using so-called "price optimization" techniques that raise rates for policyholders who are considered unlikely to search for a better deal.
"It is terribly unfair and entirely illegal for insurance companies to vary premiums based on whether or not [consumers] are statistically likely to shop around," said J. Robert Hunter, director of insurance for the Consumer Federation of America.
The Washington, D.C.-based association has identified the pricing practice as a growing problem -- particularly in the auto insurance industry -- and has been urging state insurance commissioners nationwide to take steps to stop it.
In a notice dated Aug. 22, Pennsylvania Insurance Commissioner Teresa Miller noted that state law requires insurance premiums to be based on risk factors.
Policyholders and applicants with identical risk profiles "must be charged the same premium," Ms. Miller wrote. Rates not based on loss experience are considered "unfairly discriminatory," she said.
Other states that have issued formal bulletins within the last year expressly prohibiting the practice include California, Florida, Indiana, Maryland, Ohio, Vermont and Washington.
Price optimization is "simply price gouging by a fancy name," said Birny Birnbaum, executive director of the nonprofit Center for Economic Justice, which issued a joint news release with the consumer federation applauding Pennsylvania's action. The center, which is based in Austin, Texas, notes on its website that it represents the interests of low-income and minority consumers.
Nearly 60 percent of consumers are "sitting ducks" for price optimization because they never or rarely shop for a cheaper policy, the consumer federation's Mr. Hunter has said.
"Even before the advent of price optimization, it was very important to shop for insurance since prices vary so widely," he said.
Patricia Sabatini: PSabatini@post-gazette.com; 412-263-3066.
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