Michigan lawmakers are weighing legislation that could formally prohibit insurers from using price optimization in personal auto and homeowners' insurance rate-setting.
Senate Bill 1013, introduced by Sen. Jeremy Moss, would codify a ban on price optimization, a practice critics describe as setting premiums based on a policyholder's willingness to pay rather than on actuarially supported risk factors. The Senate Economic and Community Development Committee recently heard the measure.
"Price optimization is a shady practice that allows insurance companies to exploit your shopping patterns to determine the highest rates you are willing to pay. If they think you'll renew your policy, they may hide rewards, discounts, perks and special offers from you — or worse, simply jack up your rates," Moss said in a release. "Twenty other states outlaw price optimization, and Michigan's insurance department prohibits this practice. We must put this prohibition permanently into our state law to protect Michigan consumers from billing scams amid skyrocketing costs."
Supporters of the bill argue that the practice can result in loyal customers paying more than similarly situated consumers who actively shop for coverage or threaten to switch carriers.
Michigan's Department of Insurance and Financial Services already prohibits the use of price optimization in rate filings. Still, proponents contend that placing the prohibition directly into statute would provide stronger and more permanent consumer protections. Moss noted that approximately 20 states have enacted similar restrictions.
Beyond addressing price optimization, the bill would revise portions of Michigan's insurance code governing rate standards. The legislation reinforces that rates must not be excessive, inadequate or unfairly discriminatory, while clarifying standards related to inadequate rates and insurer solvency.
The bill has moved to the Economic and Community Development Committee for consideration.
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