Auto Insurance

Local and National Consumer Groups Applaud Montana Commissioner Lindeen for Prohibiting Unfair Discrimination and Gouging in Insurance Pricing

Commissioner States Price Optimization Is Illegal and Unfairly Discriminatory

Washington, D.C. – Montana Commissioner Monica Lindeen issued an official bulletin to insurance companies banning all future use of “price optimization” and to disclose any use of it by February 1, 2016. The bulletin states:

The Montana Insurance Code prohibits unfair discrimination in rating property and casualty insurance policies. Insurance rates “may not be excessive or inadequate … [or] unfairly discriminatory.”


CSI will deny any rating plan submitted in the future that employs price optimization. Additionally, any insurer currently using a rating plan employing price optimization shall, no later than February 1, 2016: (1) notify the CSI that its current rating plan incorporates price optimization; and (2) file an updated rating plan with the CSI that does not use price optimization.

Montana is the twelfth state to notify insurers that price optimization violates state insurance statutes that require cost-based pricing and prohibit unfair discrimination in setting insurance premiums.  Rhode Island, Washington, D.C., Maine, Indiana, Washington, Florida, Maryland, Ohio, California, Vermont and Pennsylvania have previously issued notices to insurers with the same message as the Montana bulletin: utilizing non-risk related consumer characteristics to set insurance prices is illegal. The Consumer Federation of America (CFA), the Center for Economic Justice (CEJ) and Rural Dynamics, Inc applauded Commissioner Lindeen for the action and have asked all state Insurance Commissioners to similarly enforce their state laws which prohibit so-called price optimization.

“We at RDI applaud Commisioner Lindeen and her office for their leadership in protecting Montana consumers from unfair insurance practices. Price optimization hurts hard-working families and this advisory will go a long way in ensuring they  won’t be penalized simply because they have been loyal customers,” said Tom Jacobson, executive director at Rural Dynamics, Inc. based in Great Falls Montana.

In recent years, insurance companies have begun to use “price optimization” to raise customers’ premiums based on individual shopping habits and perceived “price elasticity of demand,” which is a measurement of a consumer’s tolerance for price changes and can also reflect their level of access to other choices. Price optimization aims to determine how much insurers can increase rates for each individual customer beyond what is appropriate based on his or her risk profile.

“Most Americans are required by law to buy auto insurance and by their mortgage company to buy homeowners insurance, and it is terribly unfair and entirely illegal for insurance companies to vary premiums based on whether or not they are statistically likely to shop around,” said J. Robert Hunter, Director of Insurance for CFA and former Texas Insurance Commissioner.  “It is the obligation of Insurance Commissioners to protect consumers from this kind of price gouging, and we applaud Commissioner Lindeen for her action.”

According to the consumer groups, price optimization marks a radical departure from the actuarial practice of pricing insurance premiums according to the risk of loss posed by the policyholder. The purpose of price optimization is to extract as much profit as possible from policyholders who are often required to purchase insurance policies.

“Price optimization by insurers is Big Data run amok and simply price gouging by a fancy name. Consumers are being punished for activities and circumstances unrelated to risk and without any disclosure or transparency by insurers,” said Birny Birnbaum, Executive Director of CEJ. “The state actions by twelve Insurance Commissioners are the first steps in returning insurance practices to the foundation of pricing insurance based on risk of loss.”

Contact: J. Robert Hunter – CFA, 703-528-0062; Birny Birnbaum – CEJ, 512-784-7663; Tom Jacobson – RDI, 406-454-5740

The Consumer Federation of America is a national organization of more than 250 nonprofit consumer groups that was founded in 1968 to advance the consumer interest through research, advocacy, and education.

The Center for Economic Justice is a non-profit organization that works to increase the availability, affordability and accessibility of insurance, credit, utilities, and other economic goods and services for low-income and minority consumers.

Rural Dynamics, Inc. (RDI) is a non-profit organization that works to increase financial independence and employs direct service strategies such as financial counseling and coaching, lending, saving, educating and tax preparation as well as indirect strategies such as coalition building and advocacy.