The California Department of Insurance issued a bulletin on February 18, 2015 advising insurers that they may not use “price optimization” as a rating factor in California. The Department defines price optimization as “any method of taking into account an individual’s or class’s willingness to pay a higher premium relative to other individuals or classes.” Given that price optimization does not seek to arrive at an actuarially sound estimate of the risk of loss or other loss costs, it is considered by the Department as unfairly discriminatory.
Insurers are directed to remove this factor from any rating plans they plan to file after the date of the bulletin, and for rating plans currently on file with the Department that include price optimization as a rating factor, insurers must file new plans within six months that omit this factor.
For a copy of the bulletin, click here.
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