The Texas Department of Insurance published a bulletin informing insurers that the use of price optimization is not allowed.
Price optimization is when an insurer changes the premium charged based on factors unrelated to the policyholders' risk of loss. Companies will use price optimization to determine how high of a premium a policyholder may accept before shopping for a new policy.
The Department states that the use of price optimization is unfairly discriminatory and violates the state Insurance Code. Rates charged must be based on risk and be actuarially sound, not based on other factors.
The Department states that while there is no universally accepted definition of "price optimization," any circumstance where two insureds with the same risk profile are charged different premiums is unfairly discriminatory. Insurers engaging in the practice are in violation of Texas law and may face enforcement action.
The bulletin can be found here.
Ray Sugrim
Ray Sugrim is an Insurance Editor with FC&S Expert Coverage Interpretation, a division of National Underwriter Company and Arc Network. Ray is responsible for helping develop and edit content for subscribers. Ray is a St John’s University graduate with a degree in Risk Management & Insurance and is a CPCU candidate.