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Connecticut Prohibits Price Optimization for Personal Risks

Dec. 3, 2015 AAIS Advisory notice

A bulletin in Connecticut has banned the use of price optimization for personal risks, adding that state to those that have prohibited or restricted the practice.

As in other states, the Connecticut bulletin states that personal property and liability rates must, by law, be based on risk- and cost-based considerations, and cannot incorporate factors such as a policyholder's propensity to shop for coverage, ask questions, or file complaints. Personal lines rating plans also cannot utilize factors for price elasticity of demand or retention at an individual level.

Companies using such factors are directed to submit revised rating plans within 60 days of the Dec. 4, 2015 bulletin.

The Connecticut bulletin includes a section stating that: 

Connecticut rating laws . . . require insurers to group individual policyholders into credible and actuarially sound risk-based classifications and treat similarly situated policyholders equally with respect to insurance pricing. 

Rating plans in which insureds are grouped into homogeneous rating classes should not be so granular that resulting rating classes have little actuarial or statistical reliability. 

Likewise, the use of sophisticated data analysis to develop finely tuned methodologies with a multiplicity of possible rating cells is not, in and of itself, necessarily a violation of Connecticut's rating laws as long as the rating classifications and rating factors are cost-based.


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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