Insurance companies are putting more money and resources behind big data and analytics every day with the hope that greater insight will help their companies grow strong books of business. But carriers must tread carefully and ensure that the data and models they use pass the scrutiny of the public and regulators and are viewed as fair and relevant to the insurance product.
That’s one way to interpret the message sent by 18 state insurance departments over the past several months through bans on the practice of “price optimization” in those states. At issue is the use of certain data points in setting rates at renewal time. The Consumer Federation of America, among others, contend that insurance companies are using certain kinds of data, not related to policyholders’ actual risk profile, to identify the absolute highest rate a customer can be charged before they will switch carriers.
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