Texas insurance regulators warned carriers on September 2 that using a policyholder’s willingness to tolerate a price increase or shop for another policy when setting premiums violates state law. The practice, known as “price optimization,” may result in enforcement action, according to a new Texas Department of Insurance bulletin.
Gov. Greg Abbott announced the warning Wednesday, nine days after directing TDI to address rising property and casualty insurance costs. The prohibition applies to all insurance products regulated by the agency.
How Price Optimization Works
Price optimization occurs when an insurer varies premiums based on factors unrelated to a policyholder’s risk of loss or the company’s expenses. Those factors can include whether a customer is likely to renew a policy, shop for another insurer, or accept a higher price.
The practice can result in policyholders with comparable risk profiles receiving different premium increases.
“Price optimization turns loyalty into a pricing factor,” TDI said in Commissioner’s Bulletin B-0007-26. “Texas law requires rates to be based on risk, not on whether a consumer is likely to tolerate a higher price.”
TDI said premiums must be based on costs associated with risk and that using price optimization in ratemaking, pricing, or the creation of a rating plan is unfairly discriminatory.
“The average annual homeowners’ insurance premium in Texas rose 79 percent in six years,” Abbott said in a September 2 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.”
Texas Law Requires Risk-Based Rates
TDI described the bulletin as a reminder of existing law rather than the creation of a new prohibition.
Chapter 2251 of the Texas Insurance Code requires insurers to consider factors such as past and projected losses, individual risks, operating expenses, catastrophe hazards, investment income, and a reasonable profit margin. Rates may not be excessive, inadequate, unreasonable, or unfairly discriminatory.
The bulletin also cites Chapter 544, which prohibits unfair discrimination between customers of the same class and essentially the same risk, and Chapter 560, which requires rates to be just, fair, reasonable, and adequate.
TDI said insurers must fully disclose the considerations used in their rate filings and warned that appropriate enforcement action will be taken against companies that fail to comply.
Neither the bulletin nor Abbott’s announcement identified an insurer accused of using price optimization. The documents also did not announce refunds or automatic reductions in existing premiums.
Warning Follows Broader Insurance Directive
As previously reported by The Dallas Express, Abbott directed TDI on August 24 to pursue several changes intended to address Texas insurance costs.
The directives included requiring insurers to consider a home’s FORTIFIED roof status when calculating rates and prohibiting carriers from refusing to write or renew residential policies based solely on a property’s age or the age of individual components, such as the roof.
Abbott also ordered TDI to create an Insurance Fraud Task Force and study the effects of excessive, unnecessary, and inflated claims costs on homeowners, personal automobile, and commercial automobile insurance.
TDI’s rate-filing data show that average statewide homeowners insurance rates increased by 21.1% in 2023, 18.7% in 2024, and 4.3% in 2025. The agency distinguishes a rate from a premium, which reflects the rate multiplied by the amount of coverage or exposure.
TDI must provide Abbott with recommendations for additional administrative action and possible statutory changes by September 14. Abbott said he also plans to work with lawmakers during the next legislative session on additional protections for policyholders.
Texans with questions or complaints involving an insurance company, agent, or adjuster can use TDI’s complaint assistance system or call the agency’s help line at 800-252-3439 from 8 a.m. to 5 p.m. Central time, Monday through Friday.
Provided by Dallas Express
