Our Positions | Price Optimization

Price optimization has come under scrutiny from state insurance regulators and legislators alike. Several state insurance departments have issued bulletins declaring that insurers’ use of price optimization models to determine rates and premiums is prohibited by state insurance laws citing unfair discrimination. It should be noted that this practice is not widely adopted across the property/casualty industry.

NAMIC is strongly supportive of risk-based pricing as a fundamental tenet of insurance. It must be recognized, however, that prospective forecasting of losses is not precise and that an element of business judgment has always played a role in insurance pricing. Traditionally, the practice of subjectively adjusting or supplementing loss costs in line with market considerations has been referred to by terms such as market-based pricing, rate stabilization, rate smoothing, rate tempering, and rate capping. Historically, regulators in most U.S. jurisdictions have generally permitted and sometimes even encouraged efforts to prospectively adjust rates to match risk, provided that an insurer’s proposed adjustment of the cost-based rate falls within an actuarially-justified range of reasonableness.

NAMIC Position

NAMIC urges policymakers to include a clear definition when seeking to address so-called “price optimization” in any future policy measures. NAMIC opposes measures that fail to recognize actuarial cost projections are not precise and market considerations play a legitimate and essential role in property/casualty insurance pricing. However, we support measures meant to ensure individuals within a given risk classification are treated the same with respect to pricing.

Concerning the Use of Price Optimization in Establishing Rates -NAMIC’s Written Comments on the Draft Proposed Bulletin

Louisiana: NAMIC Provides Oral Testimony in Successful Effort to Block ‘One Rate Increase Per Year' Limitation

February 15, 2017 NAMIC joined with other insurance trade associations on Feb. 15 in testifying before the Senate Insurance Committee to hear concerns over the Louisiana Department of Insurance Proposed Regulation 105. NAMIC's oral testimony outlined... Read more

Louisiana: NAMIC Participates in Request for Hearing to Object to 'One Rate Increase Per Year' Limitation

February 1, 2017 NAMIC joined with other insurance trade associations on Jan. 31 in filing a request with the House and Senate Insurance committees to hear concerns over the Louisiana Department of Insurance Proposed Regulation 105. NAMIC filed... Read more

Louisiana: DOI Responds to Comments From Industry Opposing Limits on Rate Increases

January 19, 2017 The Louisiana Department of Insurance issued its response on Jan. 19 to various comments from the industry opposing proposed Regulation 105. This proposed regulation would limit an... Read more

NAIC Panel to Survey States on Their Review of Sophisticated Pricing Models

August 31, 2016 The NAIC's Casualty Actuarial and Statistical (C) Task Force, the panel that drafted the white paper on price optimization, is planning to survey states regarding regulatory review of the... Read more

Nebraska: NAMIC Urges Committee to Reject Open-Ended Price Optimization Bill

February 12, 2016 NAMIC submitted testimony opposing LB 1041 for its Feb 16 hearing before the Nebraska Legislature's Business, Commerce and Industry Committee hearing. Read more


Jon Bergner
Vice President - Public Policy and Federal Affairs