GOVERNOR ABBOTT REMINDS INSURERS OF PRICE OPTIMIZATION BAN UNDER TEXAS LAW

The following information was released by the office of the Governor of Texas:

Governor Greg Abbott today announced that, in response to his directive last week to make property insurance more affordable, the Texas Department of Insurance (TDI) reminded insurers that the practice of price optimization violates Texas law for all TDI-regulated insurance products.

The average annual homeowners insurance premium in Texas rose 79 percent in six years, said Governor Abbott. "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.

Price optimization occurs when an insurance company varies premiums based on factors unrelated to a policyholders risk of loss or the companys expenses, including whether a customer is likely to shop for a new policy or accept a higher price. Two policyholders with the same risk profile can then receive different premium increases. Texas law forbids that result.

The TDI Commissioners 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. Premiums must be based on the cost associated with risk. TDI will take enforcement action against companies that fail to comply.

Governor Abbott will work with the Legislature next session to enhance consumer protections for insurance policyholders and curb premium increases.