Sep 14, 2015 - Page 1 ... 2015 DRAFT PRICE OPTIMIZATION WHITE PAPER ... techniques is that price optimization is illegal
September 14, 2015 CONSUMER FEDERATION OF AMERICA'S COMMENTS ON CASTF’S AUGUST 15, 2015 DRAFT PRICE OPTIMIZATION WHITE PAPER The Consumer Federation of America has reviewed the most recent draft of the CASTF Price Optimization White Paper. As the paper notes, nearly every state prohibits unfairly discriminatory rates. Price optimization is a method that uses non-risk-related information to systematically move insurance premiums away from their cost-based level. No one denies this. Systematically moving prices around to reflect non-risk information such as price elasticity of demand per se causes rates to be unfairly discriminatory and illegal in virtually every state. It is our view that the only conclusion that can be drawn from a review of price optimization techniques is that price optimization is illegal and must be prohibited. The White Paper presents a series of sections that generally point in the direction of banning price optimization, but it does not conclude, as we do, that such a ban is the only reasonable recommendation for state regulators. Instead, it highlights various degrees of limitation on the practice and a series of disclosure requirements that might be implemented to address this unfairly discriminatory practice. The White Paper should be revised in order to more clearly assert the inescapable fact that rate or premium adjustments based on price elasticity of demand and other non-risk-related factors is illegal under state laws and should be banned by state regulators. Beyond that, our disagreements with the content of the White Paper have generally been addressed in our prior comments – for example, the table in paragraph 23 still fails to acknowledge elasticity of demand analysis as a difference between price optimization and traditional ratemaking approaches. Because these disagreements have already been addressed previously, we will not repeat them here. However, we would like to provide one suggested change to the language of Appendix A that we believe would clarify the model bulletin in a manner consistent with the authors' intent. We suggest that the second sentence of the second paragraph be revised to read as follows (new language in italics): Use of such information on a large group basis for the purposes of capping rates below the indicated rate or transitioning to higher indicated rates is considered in the favor of consumers and is accepted to be used in this state to the extent not specifically disallowed. We appreciate your consideration of our views and suggestions and would be pleased to discuss our thoughts with the Task Force or any individual regulator and answer any outstanding questions you have.
