Connecticut Bans Price Optimization
December 8, 2015

On December 4, 2015, the Connecticut Insurance Department (the “CID”) issued Bulletin PC-81 banning the practice of price optimization, a pricing method whereby insurers use factors not specifically related to an insured’s expected losses and expenses in pricing coverage. Bulletin PC-81, which was issued to all insurers licensed to write property and casualty insurance, reminds carriers of a number of Connecticut statutes governing rates and rating methodologies and states that, to the extent rating practices such as the following are not cost-based, they are prohibited as unfairly discriminatory: (a) price elasticity of demand on an individual level; (b) propensity to shop for insurance; (c) retention adjustment at an individual level; and (d) a policyholder’s propensity to ask questions or file complaints. Bulletin PC-81 requires property and casualty insurers that use price optimization to rate personal lines policies delivered or issued for delivery in Connecticut to submit revised filings that remove such factors to the CID within 60 days. It also requires certain disclosures on the SERFF General Information page.

In a CID press statement issued in conjunction with Bulletin PC-81, Connecticut Insurance Commissioner Katherine L. Wade states, “The Department views price optimization as a discriminatory practice and therefore a violation of state insurance law. It can result in two policyholders who have the same loss history and risk profile receiving two different premium increases.”

Connecticut’s action follows a number of other jurisdictions that have recently issued bulletins banning price optimization. A National Association of Insurance Commissioners (“NAIC”) White Paper addressing the issue is expected to be finalized shortly.


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