State insurance commissioner warns against ‘price optimization’

State Insurance Commissioner Mike Kreidler on Thursday warned insurance companies against using certain personal data to rate customers.

In a “Technical Assistance Advisory” sent to property and casualty insurers doing business in the state, Kreidler explained that “price optimization” is illegal in Washington.

The practice, he wrote, “involves an insurer’s use of sophisticated statistical analysis, often using non-insurance data, to predict a policyholder’s likelihood of renewing a policy.”

Kreidler further explained price optimization in agency website video, saying the practice is aimed at “somebody that is not likely to go shopping for new insurance products. As a result of that they can raise the rates and you will still remain loyal to them. It’s really a loyalty penalty.”

If a company is using such methods, he said, “we’re going to go after them.”

Agency spokesman Steve Valandra said no complaints have been submitted to his office from policyholders.

However, he said, “it’s something insurance commissioners around the country are looking at. Commissioner Kreidler felt he had to do the same thing here.”

Valandra said price optimization can include the collection of data, including shopping habits at a grocery store or “how you take care of your home. They’re using information that is not directly related to insurance. They’re not basing it on your claims history. They’re factoring other details that have nothing to do with insurance.”

The practice, according to an agency release Thursday, “can result in two policyholders receiving different premium increases, even though they have the same loss history and risk profile.”

State law, the release stated, “requires that premium rates for insurance not be excessive, inadequate or unfairly discriminatory. Rates must be based on cost associated with risk. Charging higher rates to certain consumers based on their willingness to look elsewhere for insurance does not reflect genuine increased cost incurred by the insurer.”

Should an insurer be found to be using price optimization data that are unrelated to cost and risk, “it will be considered unfairly discriminatory and in violation of Washington State law,” the release stated.

C.R. Roberts: 253-597-8535