New York Regulator to Examine Auto Insurance Pricing

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  • Over the last few years, many consumers across the country have seen their auto insurance rates go up despite the fact that their driving record is unchanged or has even improved. This has drawn a lot of concern among both drivers and lawmakers at the state level. As such, the state of New York’s top financial regulator is now trying to determine how auto insurers set their rates. This certainly portends the potential for a big change in the industry, and consequently, insurance agents might want to prepare both themselves and their clients for what comes next.

    The New York Department of Financial Services recently sent letters to many auto insurance providers operating in the state, as well as insurers in other fields, asking them to provide data on how they set rates and place customers into certain brackets, according to a report from the Wall Street Journal. This is being done in an effort to identify whether those efforts fall into the category of being “unfairly discriminatory” under state law.

    “[The regulator] is concerned that insurers are charging higher premiums based on whether a consumer is less likely to notice, shop around or object,” the letter said, according to the newspaper.

    Why is this coming up?
    At issue here, specifically, is the practice of “price optimization,” which has recently garnered headlines across the country as more studies find that lower-income people are paying higher insurance rates than those with more financial security, the report said. When insurers use price optimization, they charge people more for the same coverage over time if they don’t think that person is going to put up a fuss about it. For their part, though, insurers generally argue that this interpretation of how price optimization works is more than a little simplistic, and does not take into account many other aspects of the efforts.

    The more that insurance agents can do to help their clients understand the ways in which their rates are set, and what they do on an ongoing basis to alter them, the better off both they and the drivers are likely to be. That’s because people who have a solid understanding of how their finances work will typically be more satisfied with their coverage overall, even in comparison with people who have better access to the occasional discount on their policies. That, in turn, will usually also lead to higher client retention rates for agents going forward.