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The Consumer Federation of America recently issued an alert cautioning drivers about a new pricing “scheme” being used by a growing number of auto insurers, penalizing loyal customers by bumping up premiums based on statistical models showing how much policyholders are likely to tolerate before looking elsewhere. Dubbed “price optimization,” the practice involves raising premiums based on how unlikely it is that a customer will shop for a better deal, the Washington, D.C.-based association of nonprofit consumer groups said. The technique is also being used to help price other types of insurance, but is most prevalent in the auto industry, said Bob Hunter, director of insurance for the federation and former Texas insurance commissioner. Mr. Hunter said about half of the largest auto insurers nationwide employ the practice. “Your insurer may be increasing your premium by far more than your loyalty discount, precisely because you have been so loyal,” he said.
The practice violates state laws that prohibit insurance companies from unfairly discriminating against customers with the same risk profile as others who are charged lower premiums, the federation said.
The consumer federation said lower-income households are hurt the most by price optimization because they tend to shop around less than wealthier consumers. Persons having any insurance-related concerns can contact your state insurance commissioners:
The National Association of Insurance Commissioners in Washington, D.C., recently asked a task force to investigate. Nearly 60 percent of consumers never, or rarely shop for a cheaper policy. The Federation says consumers have reported savings of as much as 15% with their current provider upon getting quotes from their competitors.