Governor Greg Abbott announced Sept. 2 that the Texas Department of Insurance has reminded insurers that the practice known as price optimization violates Texas law for all TDI-regulated insurance products. According to the governor’s office, the reminder came in response to a directive Abbott issued last week to make property insurance more affordable.
The move targets a pricing practice the governor’s office says drives up costs for existing customers. “The average annual homeowners’ insurance premium in Texas rose 79 percent in six years,” Abbott said in the Sept. 2 release. “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.”
According to the governor’s office, 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. The release said two policyholders with the same risk profile can then receive different premium increases, an outcome Texas law forbids.
The TDI commissioner’s latest bulletin reminds all insurance companies and their agents and representatives that any use of price optimization in the ratemaking or pricing process, or in a rating plan, is unfairly discriminatory and a violation of the Texas Insurance Code, according to the governor’s office. Premiums must be based on the cost associated with risk, the release said, and TDI will take enforcement action against companies that fail to comply.
Looking ahead, the governor’s office said Abbott will work with the Legislature next session to enhance consumer protections for insurance policyholders and curb premium increases.