CNBC just issued a report titled, "Data mining is now used to set insurance rates; critics cry foul". In the report, CNBC notes that you have to have insurance to buy a house or to drive a car. You might not like the price you pay for those products, but they are mandated by law. The insurance industry has now discovered how to use data mining software to set rates, a process they call "price optimization" and their critics, notably The Consumer Federation of America (the "CFA"), call an unfair and discriminatory way to overcharge policyholders.
According to the Consumer Federation of America, insurance pricing should be risk based. This data mining tool allows insurance companies to price based on identifying which consumers are most likely to be willing to absorb price hikes without switching carriers. An inertia measurement, essentially.
"Who us?", decries the insurance industry. Unfairly price our product to consumers? According to the article, the Insurance Information Institute and Earnix, the company providing the software, claim the market is competitive and transparent about pricing, and that is all that is needed. What's the big fuss?
Ironically, these same insurance companies and their tort reform insurance company funded proxies, the U.S. Chamber of Commerce, the Institute for Legal Reform, and the Coalition for Common Sense, have been jumping up and down decrying that disclosure and competitive market pricing are not enough when it comes to an industry they consider an adversary - legal funding companies. Just as they did in hearings this week in Louisiana and Missouri.
When a consumer has been paying his premiums for year, and is injured because of an at fault uninsured motorist, these insurance companies become adversarial to their long paying faithful clients. If consumers have an immediate need for money because of the injury but do not want to take an immediate settlement they consider too low from their insurance company, legal funding companies give them the economic option of taking some money now in exchange for selling a portion of their future settlement, if there is one. The market generally dictates what price that portion of the claim is sold at, and consumers (in consultation with their attorneys) can determine if the amount they stand to gain from not buckling to immediate financial pressure outweighs the amount of their potential future settlement they need to sell off.
Insurance companies do not like this, and have been on the war path of introducing bills in state houses across the country to rate cap this service out of business. So again, disclosure and competitive market pricing works just fine for them - but not for a service that allows consumers to wait out the adverse process they are in with those same insurance companies.
For more on the story, go to:
http://www.cnbc.com/...