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Florida Bans Insurance Companies from Gouging Loyal Customers Are You the Victim of Price Optimization?

Pekar Law, P.A. June 10, 2015

In mid-May, Florida became the fourth state to forbid insurance companies from charging customers who are unlikely to shop around for a better deal more for their coverage. This move is a boon to consumers, the majority of which renew their current policies without looking for a better deal.

Charging loyal customers more, known in the industry as “price optimization,” is just one of the many tactics insurance companies use to squeeze every nickel they can out of their customers.

The companies say they are not doing anything wrong. The law allows a range of fees to be charged to the policy-holders based on how risky insuring them is. The companies claim that they are just charging different rates within the approved band.

Regulators, however, think that price optimization treats likelihood to switch providers as part of a consumer’s risk profile since the companies consider past renewals, location, the number of insurance companies offering policies in the area where the customer is located, and perceived financial literacy. This is arguably discrimination since it is not based purely on risk.

The Consumer Federation of America, or CFA, says customers who don’t shop around for lower rates get charged as much as $5 to $10 per month more than customers who get quotes from multiple providers each time their policy is up for renewal.

Policy holders in Florida will now join the residents of Maryland, Ohio and California in knowing that they are not going to be punished for being loyal customers. At this point it is unclear exactly what impact this move will have on insurance rates. The companies have some time to file paperwork with the state disclosing past rate optimization and explaining how they are going to end the practice for existing customers. In the meantime, the industry must cease pricing new plans using optimization data.

If this news inspires you to shop around for insurance, it is important to make sure you are comparing apples to apples. With this new policy in place, a lower price being offered by a competitor is almost certainly tied to lower coverage, since it is unlikely that one company would rate a person’s risk drastically different than another.

If you need someone to take a look at the fine print of different policies to make sure you know what you are covered for and what you are not or if you are considering bringing a property insurance claim or are currently in dispute with your insurance company, consider calling Pekar Law to speak with an experienced property insurance law attorney. Please call the firm’s Tampa office if you would like to schedule an appointment.