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Washington Warns Insurers About Price Optimization

July 10, 2015 AAIS Advisory notice

A "technical assistance advisory" from Washington State Insurance Commissioner Mike Kreidler warns insurers that any use of price optimization that results in premiums, rates, or rating factors "unrelated to cost and risk" will be considered unfairly discriminatory and in violation of Washington State law.

Kreidler writes that price optimization "involves an insurer’s use of sophisticated statistical analysis, often using non-insurance data, to predict a policyholder’s likelihood of renewing a policy."

He adds that "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 a genuine increased cost incurred by the insurer."

Kreidler concludes by saying that his office will not approve rates it considers to be unfairly discriminatory, but does not explicitly order revision of existing rating plans, as have some other states.

AAIS Advisory notices are posted periodically to announce AAIS product developments, and to provide news items that are relevant to our program users. Advisory notices are news summaries that paraphrase documents which should be consulted directly for complete, authoritative information.

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