The Texas Department of Insurance (TDI) has sent out a bulletin to insurers to remind them that the practice of “price optimization” violates Texas law for all TDI-regulated insurance products.
This is response to Governor Greg Abbott’s directive to make property insurance more affordable.
“The average annual homeowners’ insurance premium in Texas rose 79 percent in six years,” said Governor Abbott. “Price optimization drives up costs for loyal customers. Insurance companies must base rates on risk, not on how much extra money they think a customer will pay. TDI will take action against any company that uses this illegal practice.”
Price optimization occurs when an insurance company varies premiums based on factors unrelated to a policyholder’s risk of loss or the company’s expenses, including whether a customer is likely to shop for a new policy or accept a higher price. This means that two policyholders with the same risk profile may receive different premium increases. Texas law forbids that.
The TDI Commissioner’s latest Bulletin reminds all insurance companies, their agents, and representatives that use of price optimization in the ratemaking or pricing process or rating plan, is unfairly discriminatory and a violation of the Texas Insurance Code. Premiums must be based on the cost associated with risk. TDI will take enforcement action against companies that fail to comply.
Governor Abbott will work with the Legislature next session to enhance consumer protections for insurance policyholders and curb premium increases.
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