Price optimization has been used in Commercial Lines since the industry began. ISO officially calls it Individual Risk Premium Modification (IRPM). Companies and agents use this tool every day to optimize the price charged to a policyholder. Most often, it is used to credit the price of a policy and often that is initiated by an agent. IRPM plans in most states are capped at a 25% maximum credit or debit. If the policyholder will renew a policy at only a 10% credit, the company is not going to offer them a 15% credit. The continue to offer the 10% credit as the “optimized” price. Regulators may want to think about why this is OK in Commercial but not in Personal Lines.
Yes that’s true, but for the most part those are risk-based factors (i.e., management, safety programs/procedures, quality control oversight, etc.)and stem from competitive forces not demand elasticity. Also, those plans are filed IRPM or Sch. Rating plans.
Almost all states recognize that Personal & Commercial lines are different animals and regulate them that way.
Personal Lines has very little flexibility in cost, unlike Commercial Lines. Try asking a Personal Lines underwriter to apply a scheduled credit sometime and you will have silence on the other end of the line. Within their actuarial model however, they can and do re-score or re-tier a customer to get increases. It almost always results in a higher premium to the customer. They also practice discrimination against some groups of customers, particularly the senior population, no matter how good they are as a customer.
Does not Prop 103 regulations do the same thing as price optimization for CA Private Passenger Auto consumers. If people would realize that the restrictions by territory,renewal discounts and credit rating hikes the rate for many people to subsidize others. I think the main purpose of the “consumer groups” (trial attorneys) is to get money from the intervener process.
Excellent observation, Observor. AM Best data shows that California is one of the most profitable Personal Auto states for insurance carriers. I believe in part that is because the Prop 103 regulations create an environment where rates are held higher than they would be if the free market were allowed to operate. Many companies would put aggressive rates out there for risk segments deemed to be the most profitable. The result would be lower overall premiums and higher loss ratios.
Is this much different than companies coming out with a new rating model(for new business) that is aggressive and keeping all their existing customers in the old model? We have a significant disconnect in fairness in our rating models. Some companies have rating factors that give discounts for customers coming from competitors that aren’t available to their existing customers. Risks are being fragmented with factors that don’t seem to have relevance. The more this doesn’t make sense the more we become open to enhanced regulations.
Peter, another popular term used by companies is taking “maintenance rate” on existing business. That is just another term for Price Optimization. On new business, how is it fair to give new applicants better rates than good loyal customers? What an actuarial joke this industry has become.
Price optimization has been used in Commercial Lines since the industry began. ISO officially calls it Individual Risk Premium Modification (IRPM). Companies and agents use this tool every day to optimize the price charged to a policyholder. Most often, it is used to credit the price of a policy and often that is initiated by an agent. IRPM plans in most states are capped at a 25% maximum credit or debit. If the policyholder will renew a policy at only a 10% credit, the company is not going to offer them a 15% credit. The continue to offer the 10% credit as the “optimized” price. Regulators may want to think about why this is OK in Commercial but not in Personal Lines.
Yes that’s true, but for the most part those are risk-based factors (i.e., management, safety programs/procedures, quality control oversight, etc.)and stem from competitive forces not demand elasticity. Also, those plans are filed IRPM or Sch. Rating plans.
Almost all states recognize that Personal & Commercial lines are different animals and regulate them that way.
Personal Lines has very little flexibility in cost, unlike Commercial Lines. Try asking a Personal Lines underwriter to apply a scheduled credit sometime and you will have silence on the other end of the line. Within their actuarial model however, they can and do re-score or re-tier a customer to get increases. It almost always results in a higher premium to the customer. They also practice discrimination against some groups of customers, particularly the senior population, no matter how good they are as a customer.
Robert Hartwig is a slick talker. He could sell water to a whale.
Does not Prop 103 regulations do the same thing as price optimization for CA Private Passenger Auto consumers. If people would realize that the restrictions by territory,renewal discounts and credit rating hikes the rate for many people to subsidize others. I think the main purpose of the “consumer groups” (trial attorneys) is to get money from the intervener process.
Excellent observation, Observor. AM Best data shows that California is one of the most profitable Personal Auto states for insurance carriers. I believe in part that is because the Prop 103 regulations create an environment where rates are held higher than they would be if the free market were allowed to operate. Many companies would put aggressive rates out there for risk segments deemed to be the most profitable. The result would be lower overall premiums and higher loss ratios.
Is this much different than companies coming out with a new rating model(for new business) that is aggressive and keeping all their existing customers in the old model? We have a significant disconnect in fairness in our rating models. Some companies have rating factors that give discounts for customers coming from competitors that aren’t available to their existing customers. Risks are being fragmented with factors that don’t seem to have relevance. The more this doesn’t make sense the more we become open to enhanced regulations.
Peter, another popular term used by companies is taking “maintenance rate” on existing business. That is just another term for Price Optimization. On new business, how is it fair to give new applicants better rates than good loyal customers? What an actuarial joke this industry has become.