Rhode Island Department of Insurance Issues Bulletin Prohibiting Price Optimization

Rhode Island Superintendent of Insurance Joseph Torti III recently issued a bulletin advising Rhode Island personal line insurers that Rhode Island law prohibits the use of certain price optimization techniques in determining property/casualty rates. Under Rhode Island law, applicants for insurance with identical risk classification profiles must be charged the same premium. Any techniques that produce rates that fail to reflect difference in expected losses and expenses with reasonable accuracy are prohibited under the law as unfairly discriminatory. Rate adjustments may not be based on non-risk related factors such as “price elasticity of demand,” which seek to predict how much of a price increase a policyholder will tolerate before switching to a different insurer. Rhode Island joins Pennsylvania, Maryland, Ohio, California, Florida, and Indiana as states that have issued formal prohibitions on the use of price optimization in determining property/casualty insurance rates.

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