NAIC. Price - propensity to shop

sunolivia189

I have a quick concept question.

In NAIC.Price, Full Battle Quiz # 15, benefits of price optimization, you wrote that one of them is "doesn't unfairly discriminate - propensity to shop around".

However, Full Battle Quiz #20, rating considerations that Task Force believes to be unfairly discriminatory, one of the answers is "propensity to shop for insurance."

So is "propensity to shop around" unfairly discriminatory or not?

graham

There is a contradiction between Mr. Hartwig's claims in paragraph 35 and the Task Force's stance in paragraph 48.

Mr. Hartwig's Position (Paragraph 35):

• He argues that price optimization does not unfairly discriminate and still aligns with risk-based pricing principles. He views price optimization as a tool that adds precision to the pricing process.

Task Force's Position (Paragraph 48):

• The Task Force explicitly states that adjusting rates based on factors like the propensity to shop around is considered unfairly discriminatory. They believe such practices violate the statutory requirements that rates must not be excessive, inadequate, or unfairly discriminatory.

This creates a clear disagreement between the perspective of Mr. Hartwig and the regulatory concerns outlined by the Task Force.

My parenthetical comment about low-income customers having a greater propensity to shop around was intended to imply that low-income customers are not discriminated against unfairly. The unfairness is actually to the higher-income customers as price optimization would give them a higher rate because they are LESS likely to shop around.

Conclusion:

• I will remove the first bullet point in Battle Card 15.

sunolivia189

thank you for the clarification. So it seems there is some contradiction in the source material itself then...hmmm.....

Staff - AC

While trying to unravel whether low-income consumers have a propensity to shop, they are straying from the core topic. Propensity to shop is one of many factors playing into price optimization.