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Minnesota Bans Price Optimization in Personal Lines

Nov. 17, 2015 AAIS Advisory notice

Minnesota is the latest state to prohibit price optimization in personal lines ratemaking. As part of its ban on the practice, Minnesota is requiring company officers or actuaries to attest that their personal lines rate filings do not use price optimization.

A recent bulletin from the Minnesota Department of Commerce describes price optimization as " the practice of varying rates or premiums in order to maximize insurer retention, profitability, written premium, market share or some combination of these" based on "considerations other than expected losses, expected expenses and/or expected risk."

On that basis, the bulletin concludes that " any use of price optimization in the ratemaking or pricing process or in a rating plan is unfairly discriminatory and in violation of Minnesota law."

Insurers using price optimization to rate personal lies policies in Minnesota are directed to cease the practice immediately, and to submit revised filings within 60 days. Those filings are to include a document signed by a company officer or actuary attesting that price optimization is not being utilized in the subject rating plan.

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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