AIA Testifies in Opposition of Nebraska “Price Optimization” Bill

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WASHINGTON, D.C., February 17, 2016 -- The American Insurance Association (AIA) testified before the Nebraska Legislature on Tuesday, February 16, in opposition to LB 1041, legislation that purports to regulate the so-called practice of “price optimization” by property and casualty insurers in Nebraska.

The American Insurance Association (AIA) testified before the Nebraska Legislature on Tuesday, February 16, in opposition to LB 1041, legislation that purports to regulate the so-called practice of “price optimization” by property and casualty insurers in Nebraska. AIA is concerned the new legislation is overly expansive and could actually hamper effective insurance regulation.

The specific language in question is Section 44-5408 new subsection (f): “The filing proposes to discriminate between risks based on price optimization. For purposes of this subdivision, price optimization means the use of factors to help determine or adjust an insured’s premium that are not specifically related to the insured’s risk or hazard, including, but not limited to, an insured’s propensity to shop for insurance, ask questions, or file complaints in response to an increase in such insured’s premiums.”

“We are concerned that the inclusion of the phrase ‘including, but not limited to’ is overly expansive, meaning that almost anything could be construed to be the practice of ‘price optimization,’” said Steve Schneider, AIA’s Midwest region vice president. “Insurers already operate in a heavily regulated environment, so the uncertainty of this vague phrase is troublesome. If enacted, this language could perplex insurers and handcuff the authority of the state insurance department to effectively regulate insurer practices.”

“Price Optimization” has already been extensively considered by the National Association of Insurance Commissioners (NAIC). The group produced a comprehensive white paper on the subject that included specific recommendations for state insurance departments. These included issuing a regulatory bulletin similar to the suggested version produced by the NAIC and enhancing existing state rate review and analysis regulatory practices. To date, 14 states and the District of Columbia have issued regulatory bulletins addressing the practice of “price optimization”.

“Nebraska’s current insurance marketplace and regulatory climate is presently rated sixth best among all 50 states, making it one of the best in the nation for both consumers and insurers. This high ranking is due to the fact that state’s insurance regulatory system is already so well enforced by the state insurance department. We encourage Nebraska legislators to avoid adding vague language regarding ‘price optimization’ and stick to its current model which is effective and highly rated,” said Schneider.

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