Insurers should be required by state regulators to base prices on sound actuarial principles rather than what consumers can pay, according to a report released Wednesday.
Insurance companies are basing their prices on what consumers are willing to pay—a practice called “price optimization,” according to a study by the Bipartisan Policy Center (BPC).
The BPC says in its report that this practice is harmful less-affluent customers.
“Poorer and/or less educated or sophisticated customers may not be sensitive to variations in insurance pricing due to lack of knowledge, or not having the time or ability to seek multiple insurance quotes or easy access to the internet, where different websites have made insurance pricing much more transparent,” said the report.
While calling for lower charges with bars on price optimization, the BPC said states generally should end insurance rate regulation and focus primarily on the viability of insurance carriers.
“Artificially low rates can threaten the solvency of insurers … and threaten policyholder protection,” said the BPC study.
State regulators should help consumers shop for insurance by publicizing firms’ claim histories, customer satisfaction surveys and other factors that would demonstrate the comparative value of policies, the group says.
In addition, the group said regulators should make disclosures simpler so consumers can see at a glance the key information on policies they are buying.
Too Big To Fail?
Looking at the ongoing battles in Washington D.C. over the dangers insurance firm failures could pose in a financial crisis, the BPC said the systemic risk of life insurance companies is much lower level than that of banking and other non-bank financial services.