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Rhode Island and Montana Address Price Optimization

Sept. 24, 2015 AAIS Advisory notice

Recent bulletins in Rhode Island and Montana essentially prohibit the use of price optimization in those states. 

The Rhode Island bulletin, addressed to personal lines insurers, refers to price optimization as "the judgmental use of  [rating] factors not specifically related to a policyholder's risk profile to help determine or adjust his or her insurance premium."

The bulletin reminds insurers that "base rates and rating classes must be based on factors specifically related to an insurer’s expected losses and expenses." Rates based on "non-risk-related factors" could conflict with Rhode Island law.

Carriers that use price optimization are directed to submit revised that remove such factors within 60 days of the bulletin, which is dated Sept. 18, 2015.

The Montana bulletin refers to price optimization as "the practice of varying rates based upon factors not related to risk of loss, or based upon otherwise risk-related factors for a purpose other than to determine risk of loss."

The bulletin concludes that the use of price optimization is an illegal, unfairly discriminatory practice under Montana law. Any insurer currently using price optimization in Montana is directed to notify the state's insurance department and file an updated rating plan that does not use price optimization; the deadline for the notification and revised filings is Feb. 1, 2016.


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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