What's happening
This bill bans insurance companies from using price optimization techniques to set rates based on customers' willingness to pay rather than risk.
Why it matters
Prevents insurers from charging different rates to customers based on how much they think someone is willing to pay, rather than on actual risk factors. This means your premium should reflect your risk, not your shopping habits, loyalty, or perceived tolerance for price hikes.
Closes loopholes around both formal and informal price optimization techniques. , ensuring that insurers can't use sophisticated algorithms or more subjective methods to maximize profit by targeting certain customer behaviors.
Explicitly defines what constitutes "price optimization". in state law, making enforcement clearer and giving consumers and regulators a concrete basis to challenge unfair pricing practices.
Aims to increase transparency and fairness in insurance pricing. , potentially making rates more predictable and understandable for consumers, and preventing hidden penalties for customer loyalty or lack of price shopping.
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Who cares
Insurers and affiliated insurance companies
The bill would bar price optimization in pricing, rate filings, tier placement, premium payments and dividends to maximize retention, profitability, written premium or market share.
Policyholders
The bill would prohibit varying rates or premiums based on factors unrelated to risk of loss, such as their likelihood of renewing or perceived willingness to pay more.
State insurance regulators
The bill would deem price optimization unfairly discriminatory and establish standards for assessing whether rate differences equitably reflect expected losses, expenses and risk.
Headline styles
Ban Price-Based Discrimination
Plain English, a few words. Used as the page title.
Sponsors
No co-sponsors yet.
History
- Referred to insurance
- Referred to insurance
Full text
2 pagesUnderlined is new[Struck] is removedOfficial text on nysenate.gov ↗
STATE OF NEW YORK
5520
2017-2018 Regular Sessions
IN SENATE
April 4, 2017
Introduced by Sen. SEWARD -- read twice and ordered printed, and when printed to be committed to the Committee on Insurance
AN ACT to amend the insurance law, in relation to unfairly discriminatory rates based upon the practice of price optimization
The People of the State of New York, represented in Senate and Assembly, do enact as follows:
Section 1. Section 2303 of the insurance law, as amended by chapter 20 of the laws of 1990, is amended to read as follows:
§ 2303. Standards for rates. (a) Rates shall not be excessive, inadequate, unfairly discriminatory, destructive of competition or detrimental to the solvency of insurers. In determining whether rates comply with the foregoing standards, the superintendent shall include all income earned by such insurer and any insurer controlling or controlled by such insurer or under common control by or with such insurer on all its investments of any kind and wherever located. The superintendent shall further determine whether any component of such rates represent an effort on the part of the insurer to recover losses incurred in another state due to any referendum, law or regulation which requires a general reduction in rates for the kinds of insurance described in section two thousand three hundred two of this article. Such a finding shall be deemed unfairly discriminatory for the purposes of this article.
(b) Discriminatory rates. (1) One rate is unfairly discriminatory in relation to another if it clearly fails to reflect equitably the differences in expected losses, expenses and the degree of risk. Rates are not unfairly discriminatory because different premiums result for policyholders with like loss exposures but different expense factors, or like expense factors but different loss exposures, so long as the rates reflect the differences with reasonable accuracy in accordance with acceptable actuarial principles and standards. Rates are not unfairly discriminatory if they attempt to spread risk broadly among persons insured under a group or blanket policy.
EXPLANATION--Matter in italics (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD10944-01-7
S. 5520 2
(2) Notwithstanding any other provision of this section to the contrary, an insurer and any insurer controlling or controlled by such insurer or under common control by or with such insurer, may not make or allow a differential in pricing, rate filings, tier placement decisions, premium payments or dividends, based upon any formalized price optimization models or less formal price optimization considerations, in order to maximize such insurer's retention, profitability, written premium, market share or any combination thereof. Any such practice shall be deemed unfairly discriminatory for purposes of this article.
(3) For purposes of this subsection, "price optimization" shall mean the practice of an insurer to vary its rates or premiums based on factors other than those directly related to risk of loss, such as setting rates or factors based on an insured's likelihood to renew a policy or on an individual's or class of individuals' perceived willingness to pay a higher premium relative to other individuals or classes when faced with a rate increase, known as price elasticity of demand.
§ 2. This act shall take effect immediately.
Reflowed for reading: line numbers and page breaks removed. Cite the official text.
Sponsor's memo
Title of bill
An act to amend the insurance law, in relation to unfairly discriminatory rates based upon the practice of price optimization
Purpose
To amend the insurance law to describe what constitutes discriminatory rates and to deem the practice of price optimization an unfairly discriminatory practice under Article 23 of such law.
Summary of provisions
Section 1 of the bill amends Section 2303 of the insurance law by creating subsections and adding a new subsection to describe what constitutes a discriminatory rate in connection with expected losses, expenses and degrees of risk, and bars any insurer, subsidiary or affiliate from utilizing the practice of price optimization which would be deemed an unfairly discriminatory practice. This section also defines price optimization.
Read the full memo (604 words)
Section 2 is the effective date.
Justification
"Price optimization" is defined as the practice of an insurer to vary its rates or premiums based on factors other than those directly related to risk of loss, such as setting rates or factors based on an insured's likelihood to renew a policy or on an individual's or class of individuals' perceived willingness to pay a higher premium relative to other individuals or classes when faced with a rate increase, known as price elasticity of demand.
Sophisticated statistical analyses and predictive computer models have been developed that chart a policyholder's tolerance of paying higher premium rates upon automatic renewal, before reentering the insurance marketplace to shop for comparable coverage at a better price with a different insurance company. These models rely on factors other than an insured's expected loss claims, or expenses or risk to the insurer. Some insurance regulators and industry commentators have described the practice of price optimization as "voodoo pricing" or "high-tech price gouging" of insurance consumers because it is not based upon risk, and note that vulnerable consumer groups such as senior citizens and low-income individuals, are much less likely to switch insurers at time of policy renewal.
A number of states, including but not limited to California, Delaware, District of Columbia, Florida, Indiana, Maine, Maryland, Minnesota, Montana, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia, Washington, have issued regulatory bulletins or other policy communications in connection with price optimization, with a number declaring such practice to violate their applicable state laws or to be unfairly discriminatory and thus against public policy. While the practice of price optimization appears to be most prevalent in connection with personal lines automobile and homeowners policy rates, it has also been identified in certain commercial lines property/casualty rate filings, according to some state insurance regulators.
The National Association of Insurance Commissioners' (NAIC) Casualty Actuarial and Statistical (C) Task Force issued a Price Optimization White Paper on November 19, 2015. Appendix B of the White Paper sets forth the following major recommendation encompassed within a "Potential State Bulletin on Price Optimization in Personal Lines
Ratemaking," leaving it to individual states to decide if it should also apply to commercial lines policies:
"The following practices are inconsistent with statutory requirements that 'rates not be ... unfairly discriminatory:'
a. Price elasticity of demand.
b. Propensity to shop for insurance.
c. Retention adjustment at an individual level.
d. A policyholder's propensity to ask questions or file complaints."
Moreover, the New York Department of Financial Services issued a "Section 308 letter" on March 18, 2015 to all insurance companies to inquire into the practice of price optimization.
Accordingly, the practice of price optimization should be eliminated as not risk-based, and thus unfairly discriminatory to New York insurance consumers.
Legislative history
New bill.
Fiscal implications
None.
Effective date
This act shall take effect immediately.
Summaries, headlines and scores are AI-generated from the official bill text. How we score bills. Source: NYS Open Legislation.