The Consumer Federation of America is warning of a pricing strategy being used in approximately 12 states, including Pennsylvania, to increase auto insurance premiums illegally. The practice is known as price optimization, and the pricing models are reportedly designed to raise rates for those who are unlikely to search for better rates. The alleged goal of the scheme is to increase company profits.
With this type of pricing mechanism, individuals may be charged more than others who have similar risk profiles. However, this is discriminatory and is prohibited by state laws. The consumer group reportedly discovered the practice through filings of auto insu rance rates in Pennsylvania by Allstate Insurance.
According to information in the filing, 99 percent of Pennsylvania customers were categorized in individual micro-segments based on an analysis of the premiums that they were likely to be willing to pay in excess of the actuarial price for insurance. A spokesperson for the Pennsylvania Insurance Department indicated that the filings were withdrawn after Allstate was informed that they would not receive approval. Another official indicated in September that the situation was being monitored closely, noting that the practice would not be allowed in the state.
Representatives for Allstate indicated that the company's plans are only risk-based and that no inappropriate pricing has occurred. While Pennsylvania officials insist that the practice has not affected consumers in the state, an official with the CFA alleges that although this is the first time written evidence of such practices has been observed, there are hidden ways in which such price discrimination is occurring.
In dealing with issues such as discriminatory pricing, there may be some benefit in discussing the financial damages with a lawyer who has experience in dealing with insurance companies. In a widespread case of discrimination, class action litigation may be warranted.
Source: Pittsburgh Post Gazette, "Auto group warns of insurance pricing 'scheme' in Pennsylvania, other states," Patricia Sabatini, Dec. 17, 2014