Use of price optimization

Home Bulletins Commissioner bulletins – 2026 B-0007-26 September 2, 2026 To:   All insurance companies and their agents and representatives Re:   Use of price optimization "Price optimization" refers to 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. The practice of price optimization includes considering "the elasticity of demand" to predict policyholders' behavior—for example, the likelihood a policyholder will renew or shop for a lower premium, or a policyholder's willingness to accept a price increase. Price optimization turns loyalty into a pricing factor. Texas law requires rates to be based on risk, not on whether a consumer is likely to tolerate a higher price. While there is no universally accepted definition of price optimization, any practice that results in two policyholders with the same risk profile getting different premium increases is unfairly discriminatory under Texas law. Price optimization disregards actuarially sound estimates of policyholders' risk of loss and other costs. Premiums must be based on cost associated with risk . Any use of price optimization in the ratemaking or pricing process, or in establishing a rating plan, is unfairly discriminatory and violates the Insurance Code. Applicable Law This bulletin reminds insurance companies that their rates must comply with all Texas insurance laws, including the following statutory provisions: Required Considerations: Texas Insurance Code Chapter 2251 , concerning Rates, provides that in setting rates, companies must consider past and prospective loss experience; the peculiar hazards and experiences of individual risks; the company's actuarially credible historical premium, exposure, loss, and expense experience; catastrophe hazards in this state; operating expenses; investment income; a reasonable margin for profit; and any other factors not statutorily disallowed. Rates must not be "excessive, inadequate, unreasonable, or unfairly discriminatory." Unfair Discrimination : Texas Insurance Code Chapter 544 , concerning Prohibited Discrimination, prohibits engaging in unfair discrimination or permitting unfair discrimination between individuals of the same class and of essentially the same hazard. This includes unfair discrimination in the amount of premium, policy fees, or rates charged for a policy or contract of insurance; the benefits payable under a policy or contract of insurance; or any of the terms or conditions of a policy or contract of insurance. Prohibited Rates : Texas Insurance Code Chapter 560 , concerning Prohibited Rates, requires that rates must be just, fair, reasonable, and adequate, and may not be confiscatory, excessive, or unfairly discriminatory. These provisions show a clear intent that insurance companies doing business in Texas must classify risks according to cost-based considerations of insurance losses and expenses, and that they must disclose those considerations fully in their rate filings. Failure to fully comply is a violation of Texas law, and appropriate enforcement action will be taken. TDI expects all insurance companies to follow these laws and to not engage in the practice of price optimization. For questions about this bulletin, please contact GovernmentRelations@tdi.texas.gov For more information, contact: ChiefClerk@tdi.texas.gov Last updated: 9/2/2026