Therese Goldsmith Maryland Insurance Commissioner
Image: Maryland Insurance Administration

November 11, 2014

The Consumer Federation of America (CFA) is urging other states to follow Maryland's lead after it banned price optimization techniques used by insurance companies.

Maryland Insurance Commissioner Therese Goldsmith issued a bulletin last week that ordered insurers to file a plan for ending the pricing strategy that uses consumer data and statistical models to measure how likely each customer is to shop around and tolerate price increases.

CFA and the Center for Economic Justice (CEJ) have been sending letters and making presentations to state insurance commissioners about the practice, but Maryland is the first state to prohibit it.

Insurance companies that use this technique base a customer's premium on other factors aside from their risk of filing a claim including if a customer has made a complaint in the past. Customers who have made previous complaints, are more likely to shop around and are afforded a lower premium than those who are of similar actuarial risk, but have never filed a complaint.

"Most Americans are required by law to buy auto insurance and by their mortgage company to buy homeowners insurance, and it is terribly unfair and entirely illegal for insurance companies to vary premiums based on whether or not they are statistically likely to shop around," said J. Robert Hunter, Director of Insurance for CFA and former Texas Insurance Commissioner.

The number of insurance companies using this strategy is unknown, but according to a statement released by CFA, Earnix, a company that provides tools for this service claims that about half of the nation's large companies use price optimization for auto insurance and more than a quarter use it for homeowners insurance.

Companies doing business in Maryland have until Jan. 1 to file their plan on how they will proceed with ending the practice.

Editor's Note: NCCC is a member of the Consumer Federation of America

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