On September 2, 2026, the Texas Department of Insurance (TDI) issued Commissioner’s Bulletin # B-0007-26 (the Bulletin), addressed to all insurance companies and their agents and representatives, regarding the use of price optimization in ratemaking and pricing. The Bulletin defines price optimization, identifies the statutory provisions it implicates, and states TDI’s position that any use of price optimization in the ratemaking or pricing process is unfairly discriminatory and violates the Texas Insurance Code.
- What Is Price Optimization?
The Bulletin frames “price optimization” as “an insurance company’s practice of varying premiums based on factors unrelated to their policyholders’ risk of loss or the company’s expense so that the company can charge the highest price that policyholders will tolerate before shopping for a new policy.” According to the Bulletin, price optimization includes considering “the elasticity of demand” to predict policyholder behavior (i.e., considering the likelihood that a policyholder will renew or shop for a lower premium, or a policyholder’s willingness to accept a price increase). The Bulletin reiterates that “Texas law requires rates to be based on risk, not on whether a consumer is likely to tolerate a higher price.”
TDI acknowledges that there is “no universally accepted definition of price optimization,” but states that “any practice that results in two policyholders with the same risk profile getting different premium increases is unfairly discriminatory under Texas law.” TDI further emphasizes that “[p]remiums must be based on cost associated with risk” and that price optimization “disregards actuarially sound estimates of policyholders’ risk of loss and other costs.”
- Statutory Framework Under the Texas Insurance Code
The Bulletin identifies three chapters of the Texas Insurance Code that, in TDI’s view, are implicated by price optimization. Texas Insurance Code Chapter 2251, governing rate setting and enumerating the factors that companies must consider when establishing rates; Chapter 544 prohibiting unfair discrimination between individuals of the same class and essentially the same hazard; and Chapter 560, requiring that rates be “just, fair, reasonable, and adequate” and provides that rates may not be “confiscatory, excessive, or unfairly discriminatory.” TDI states its position that, read together, these three statutory chapters show “clear intent” that Texas insurance rates must be based on “cost-based considerations of insurance losses and expenses, and that they must disclose those considerations fully in their rate filings.”