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Florida Joins States Banning Use of Price Optimization

May 18, 2015 AAIS Advisory notice

Florida has become the fourth state to issue a formal prohibition on the use of "price optimization" in property/casualty insurance rating.

In a recent memorandum, Commissioner Kevin McCarty states that "price optimization is a process for modifying the insurance premium that would otherwise be charged to an insured or class of insureds in order to maximize insurer retention, profitability, written premium, market share, or any combination of these . . ."

McCarty adds that Florida law prohibits the application of premium discounts, credits, or surcharges if they do not have a "reasonable relationship" to "expected loss and expense experience. He concludes that "price optimization involves analysis and incorporation of data not related to expected cost for risk characteristics." 

Effective immediately, insurers are prohibited from using price optimization "in any manner" in Florida rate filings. Insurers  currently using price optimization in rating plans filed in Florida are directed to submit filings to eliminate that use, but no deadline is given. 


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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