The National Association of Insurance Commissioners recently posted on its website the Price Optimization White Paper completed in November by its Casualty and Actuarial (C) Task Force.
Among other things, the 22-page document acknowledges that the term "price optimization" can have different meanings to different organizations, but that it generally involves formal inclusion of demand-related considerations in insurance ratemaking, in addition to loss and expense factors.
Among its recommendations, the paper states that "insurance rating practices that adjust the current or actuarially indicated rates or the premiums . . . should not be allowed when the practice cannot be shown to be cost-based or comply with the state’s rating law . . ."
Elsewhere, however, it adds that "capping and transitional rules can be in the public’s best interest but . . . regulators [should] consider the extent to which they will allow capping and transitional rating."
Language from the white paper has appeared in some of the bulletins by states that have recently prohibited or restricted the use of price optimization.
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