Texas Insurers Warned Against Illegal 'Price Optimization' Practices

AUSTIN, TX — Gov. Greg Abbott announced Tuesday that the Texas Department of Insurance has reminded insurance companies that the use of "price optimization" violates Texas law for all insurance products regulated by the agency.

The announcement follows Abbott's directive last week to make property insurance more affordable for Texans.

"The average annual homeowners' insurance premium in Texas rose 79 percent in six years," Abbott said in a statement. "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 insurers set premiums based on factors unrelated to a policyholder's risk of loss or the company's expenses, such as whether a customer is likely to shop for a different policy or accept a higher premium. As a result, two policyholders with the same risk profile could receive different rate increases.

State officials said Texas law prohibits that practice.

The Texas Department of Insurance's latest commissioner bulletin reminds insurers, agents and company representatives that using price optimization in ratemaking, pricing or rating plans is considered unfairly discriminatory and violates the Texas Insurance Code.

The department said insurance premiums must be based on the cost associated with a customer's risk and warned it will pursue enforcement action against companies that fail to comply.

Abbott also said he plans to work with the Texas Legislature during the next legislative session to strengthen consumer protections for insurance policyholders and address rising insurance premiums.