Michigan Senate Moves to Prohibit ‘Price Optimization’ in Insurance Policies
In a significant legislative move, the Michigan state Senate has approved a bill aimed at prohibiting the contentious practice of ‘price optimization’ by insurance companies. This practice involves using advanced data analysis to examine customer shopping habits to influence their insurance policy rates.
Democratic state Senator Jeremy Moss, who sponsored the bill, argues that such practices allow insurance companies to unfairly inflate prices for customers unlikely to seek better deals elsewhere. “It’s wrong, it’s exploitive and it’s something that we have to go after if we want to tackle these obscenely high car insurance rates in Michigan,” Moss stated.
The Department of Insurance and Financial Services (DIFS) has expressed support for the bill, noting its ongoing efforts to scrutinize insurance rate filings to prevent the use of price optimization. DIFS has also issued Bulletin 2024-09-INS, clarifying that price optimization in rate-making is not allowed.
The Insurance Alliance of Michigan (IAM), representing insurers, backs the idea of a ban on price optimization. However, it cautions that the bill might inadvertently restrict insurers from offering competitive rates through discounts, arguing that existing regulations sufficiently protect consumers without further legislation. “The statutory and regulatory framework that prohibits price optimization and protects consumers is already working in Michigan without the need for additional statutory language that might have unintended consequences,” IAM stated in a letter to bill sponsors.
Doug Heller, director of insurance for the Consumer Federation of America, emphasized in a letter to state legislators that the legislation seeks to explicitly ban this form of discrimination. He pointed out that price optimization algorithms could disproportionately affect lower-income consumers.
Heller further suggested that insurance companies might be disguising their use of price optimization through other terms. “Doubtless, insurers have gotten more sophisticated in their deception with respect to how they describe the use of ‘elasticity of demand’ models for pricing (‘price optimization’) — sometimes calling it a retention model or maybe just some ‘rating tier’ system,” he stated in an email to Michigan Public.
To combat this, Heller proposed that DIFS should require insurance executives to certify, under penalty of perjury, that their filings do not include price optimization, and develop a review system to identify potential violations for further examination.
The bill will now proceed to the state House, where it is anticipated to pass.
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