The Michigan Department of Insurance and Financial Services (DIFS) published a bulletin announcing the signing of Senate Bill 1013, which prohibits insurers from using price optimization.
Price optimization is the practice of using data of past consumer behavior in order to charge higher premiums. It analyzes how consumers have reacted to previous premium increases to predict how much the insurer can raise the premium before the consumer would shop for similar insurance from a different insurance company. These price optimization methods charge premiums based on data that is unrelated to a policyholder's risk of loss.
Michigan Insurance Code states that rates may not be excessive, inadequate, or unfairly discriminatory. Rates are unfairly discriminatory when the difference in rates between two similar insureds are not justified by losses, expenses, or are otherwise not actuarially justified. Rates based on price optimization are considered unfairly discriminatory, and thus illegal under Michigan law.
DIFS has long held that price optimization is unfairly discriminatory, and the signing of the bill strengthens the Department's ability to prohibit the practice. Anyone who believes they have been subjected to price optimization or any other unfair practice can file a complaint with DIFS here.
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.