BILL NUMBER:  S5520

 TITLE OF BILL :  An act to amend the insurance law, in relation to
unfairly discriminatory rates based upon the practice of price
optimization

 PURPOSE :

To amend the insurance law to describe what constitutes discriminatory
rates and to deem the practice of price optimization an unfairly
discriminatory practice under Article 23 of such law.

 SUMMARY OF PROVISIONS :

Section 1 of the bill amends Section 2303 of the insurance law by
creating subsections and adding a new subsection to describe what
constitutes a discriminatory rate in connection with expected losses,
expenses and degrees of risk, and bars any insurer, subsidiary or
affiliate from utilizing the practice of price optimization which
would be deemed an unfairly discriminatory practice. This section also
defines price optimization.

Section 2 is the effective date.

 JUSTIFICATION :

              

"Price optimization" is defined as the practice of an insurer to vary
its rates or premiums based on factors other than those directly
related to risk of loss, such as setting rates or factors based on an
insured's likelihood to renew a policy or on an individual's or class
of individuals' perceived willingness to pay a higher premium relative
to other individuals or classes when faced with a rate increase, known
as price elasticity of demand.

Sophisticated statistical analyses and predictive computer models have
been developed that chart a policyholder's tolerance of paying higher
premium rates upon automatic renewal, before reentering the insurance
marketplace to shop for comparable coverage at a better price with a
different insurance company. These models rely on factors other than
an insured's expected loss claims, or expenses or risk to the insurer.
Some insurance regulators and industry commentators have described the
practice of price optimization as "voodoo pricing" or "high-tech price
gouging" of insurance consumers because it is not based upon risk, and
note that vulnerable consumer groups such as senior citizens and
low-income individuals, are much less likely to switch insurers at
time of policy renewal.

A number of states, including but not limited to California, Delaware,
District of Columbia, Florida, Indiana, Maine, Maryland, Minnesota,
Montana, Ohio, Pennsylvania, Rhode Island, Vermont, Virginia,
Washington, have issued regulatory bulletins or other policy
communications in connection with price optimization, with a number
declaring such practice to violate their applicable state laws or to
be unfairly discriminatory and thus against public policy. While the
practice of price optimization appears to be most prevalent in
connection with personal lines automobile and homeowners policy rates,
it has also been identified in certain commercial lines
property/casualty rate filings, according to some state insurance
regulators.

The National Association of Insurance Commissioners' (NAIC) Casualty
Actuarial and Statistical (C) Task Force issued a Price Optimization
White Paper on November 19, 2015. Appendix B of the White Paper sets
forth the following major recommendation encompassed within a
"Potential State Bulletin on Price Optimization in Personal Lines

Ratemaking," leaving it to individual states to decide if it should
also apply to commercial lines policies:

"The following practices are inconsistent with statutory requirements
that 'rates not be ... unfairly discriminatory:'

a. Price elasticity of demand.

b. Propensity to shop for insurance.

c. Retention adjustment at an individual level.

d. A policyholder's propensity to ask questions or file complaints."


Moreover, the New York Department of Financial Services issued a
"Section 308 letter" on March 18, 2015 to all insurance companies to
inquire into the practice of price optimization.

Accordingly, the practice of price optimization should be eliminated
as not risk-based, and thus unfairly discriminatory to New York
insurance consumers.

 LEGISLATIVE HISTORY :

New bill.

 FISCAL IMPLICATIONS :

None.

 EFFECTIVE DATE :
This act shall take effect immediately.