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Ohio Prohibits Price Optimization

Feb. 3, 2015 AAIS Advisory notice

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Ohio recently became the second state, after Maryland, to explicitly prohibit the use of "price optimization" in the rating of property/casualty insurance policies.

Insurers currently using price optimization in Ohio have until March 31, 2015 to submit filings through the System for Electronic Rate and Form Filings (SERFF) to comply with a recent bulletin from the Ohio Insurance Department.

The directive has no impact on AAIS loss costs or other rating information on file in Ohio.

The bulletin describes price optimization as the use of certain factors--such as the amount or percentage of a premium increase, or whether the insured has complained about a policy--to determine a policyholder's "price elasticity of demand,"  or how much of a premium increase a policyholder will tolerate.

According to the bulletin, price optimization departs from traditional cost-based insurance pricing and constitutes unfair discrimination based on factors other than risk of loss.

The corrective filings required under the bulletin must have effective dates no later than May 31, 2015 for new business and June 30, 2015 for renewal business. Submissions must identify the SERFF tracking numbers of filings that are being replaced or corrected.

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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