• Price Optimization Prohibited in Pennsylvania, Insurance Commissioner Therese Miller Reminds
  • August 25, 2015 | Author: G. Donovan Brown
  • Law Firm: Colodny Fass, P.A. - Tallahassee Office
  • The Pennsylvania Insurance Department ("PID") issued Notice 2015-06 from Pennsylvania Insurance Commissioner Therese Miller this weekend to warn insurers against price optimization after the question of whether the practice may be used by insurance companies was raised.

    "The answer is no," Pennsylvania Insurance Commissioner Teresa Miller said. "And the PID issues this notice to remind insurers about its longstanding prohibition against the use of price optimization techniques in property and casualty insurance rates."

    "It is well-settled that property and casualty insurance rates cannot be excessive, inadequate or unfairly discriminatory," she added.

    According to the Notice, which was issued on August 22, 2015, price optimization prohibitions can be found in all of the Commonwealth of Pennsylvania's property and casualty rate regulatory acts and the Unfair Insurance Practices Act (40 P.S. §§ 1171.1-1171.15). See section 505-A(c)(2)(i) of the Property and Casualty Filing Reform Act (40 P.S. § 710-5(c)(2)(i)), section 5(a)(7)(ii) of the act (40 P.S. § 1171.5(a)(7)(ii)), section 3(d) of The Casualty and Surety Rate Regulatory Act (40 P.S. § 1183(d)) and section 3(a)(2) of The Fire, Marine and Inland Marine Rate Regulatory Act (40 P.S. § 1223(a)(2)).

    With the advent of sophisticated pricing tools, including computer software and rating models referred to as price optimization, insurers, rating organizations and advisory organizations are reminded that policyholders and applicants with identical risk classification profiles-that is, risks of the same class and essentially the same hazard-must be charged the same premium. Rates that fail to reflect differences in expected losses and expenses with reasonable accuracy are unfairly discriminatory under Commonwealth law and will not be approved by the Department. See 40 P.S. § 1183(d).

    The PID's Property and Casualty Bureau explained that it reviews thousands of rate filings each year to ensure compliance with these standards, and the actuaries who review these filings often identify and object to filings that fail to meet these statutory requirements.