Algorithms are used to target those unlikely to shop around
Did you ever wonder why the renewal quote you get from your insurer is much higher than the one you paid last year?
If you are one of those getting a massively inflated quote even though you have had no claims, it could be because you are a victim of dual pricing by your insurer.
Dual pricing is where your loyalty is punished rather than being rewarded.
It goes under many names, but in the insurance industry it is called price optimisation.
It is not illegal but is considered detrimental to consumers.
Price optimisation is the use of mathematical analysis by a company to determine how customers will respond to different prices for its products and services.
It is also used to determine the prices that will best help it maximise profits.
Another name is inertia pricing, as those least likely to shop around for a better quote when the renewal is due will get clobbered with a price hike.
This predatory pricing is worked out by actuaries in insurance companies, deploying price optimisation software that uses algorithms to work out who is vulnerable to being charged more.
People who never switch providers, are older, or have low financial literacy are targeted.
Consultancy group Milliman explains in a report for Irish insurers: "Optimisation algorithms can push up prices for loyal customers that have been renewing their policy with the same insurer for a few years."
The only way to avoid this sneaky predatory pricing is to aggressively shop around.