Consumer Federation of America Sends Letter Highlighting Opposition to Price Optimization

The Consumer Federation of America highlighted its work opposing price optimization in insurance markets, in a letter to the Federal Trade Commission. Price optimization occurs when insurance companies collect data on individual insurance policyholders and charge them higher premiums not based on their risk, but based on their willingness to accept higher payments.

While unfair to consumers in any setting, price optimization in insurance markets is particularly egregious, because unfair discrimination laws in virtually every state are built to ensure that consumers with similar risks pay the same premium. By including a measure of elasticity of demand, which is not related to risk of loss, price optimization upends that central principle of fair insurance pricing. The insidiousness of price optimization is even greater because auto insurance is a government mandated purchase for most Americans and home insurance is mandatory for anyone with a mortgage.