For years, i have been purchasing my car and homeowners insurance through the same multiple lines agency. When my premiums started to increase, i would call the agent or representative to see what they could do to lower my rates which usually meant moving my policy to a different insurer or increasing my deductibles. But for the past 3-4 years that has been a losing proposition. This time i decided to shop around.
As it happened, I was driving my car listening to National Public Radio when i heard a segment about insurance companies use of profit maximization schemes.
Insurance companies are now engaged in determining your premium based on price elasticity and profit maximization algorithms. The algorithms they are using are based on countless factors other than risk. These companies have amassed a lot of information on our behavior. They can choose what information to input into their algorithm to determine how much profit they can extract from you without forcing you to shop around. Geography, income, credit scores, birthdays, spending habits, and an assessment of your likelihood to bolt are some of factors they take into account when they determine what your rate will be. Customers who have remained with their insurer are no longer valued and maybe charged with a loyalty tax.
In early 2014, insurance commissioner and consumer groups called upon the insurance regulators to force insurance companies to end the practice of using price/profit optimization technologies while setting rates and premiums. 45% of a recent survey of 78 major insurance companies use profit optimization. Of small insurers, 12% use PO and 55% consider price elasticity in setting prices. Many other insurers are on board to begin using these strategies.
Price optimization has been found to adversely impact individuals with low incomes the most and the practice has been banned in at least four states, California, Ohio, Maryland, and Florida.
www.creditinfocenter.com/.../07/insurance-price-optimization
www.consumerfed.org/pdfs/Insurance-Price-Optimization.
www.consumerfed.org/pdfs/price-optimization-letter-state.