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Colorado Prohibits Price Optimization in Personal Lines

Nov. 25, 2015 AAIS Advisory notice

A recent bulletin from the Colorado Division of Insurance prohibits the use of price optimization in rating plans for personal lines property and liability insurance.

As in other states, the Colorado directive states that the use of rating factors not related to an applicant's or policyholder's risk of loss or expected expenses may be considered as unfairly discriminatory under Colorado law.

Insurers currently using price optimization techniques in personal lines rating plans are directed to submit revised plans within 90 days or potentially face disciplinary action.

The bulletin adds, however, that it "does not prohibit or restrict previously acceptable practices if applied on a group basis. 

"The aim is that similarly situated individuals should be grouped into risk classifications and treated the same with respect to insurance pricing. 

"Likewise, the use of data analysis in developing rating methodologies does not, in and of itself, violate Colorado insurance law so long as risk classifications are based on expected loss and expense considerations . . ."

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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