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

NAMIC News on Price Optimization


Erin Collins
Senior Vice President - State and Policy Affairs