Michigan has taken another step to protect insurance consumers by formally prohibiting a practice known as “price optimization” in insurance ratemaking.
Governor Gretchen Whitmer recently signed Senate Bill 1013 into law, strengthening protections previously outlined by the Michigan Department of Insurance and Financial Services (DIFS). The new law prohibits insurance companies from increasing or varying a customer’s premium based on how much the insurer believes that individual may be willing to pay.
So, what exactly does that mean for Michigan insurance consumers?
Insurance premiums are traditionally based on factors related to risk and the expected cost of providing coverage. Depending on the type of insurance, those factors may include driving history, characteristics of a home or vehicle, coverage selections, claims history, geographic factors, and other information permitted under Michigan law.
Price optimization is different. It generally involves using data or predictive analytics to determine how sensitive a customer may be to a price increase. In simple terms, an insurer could attempt to determine whether a customer is likely to shop around or leave if their premium increases.
Under this type of approach, two customers presenting similar insurance risks could potentially be treated differently based not on their likelihood of having a claim, but on their predicted willingness to tolerate a higher price. Michigan has now made clear that this practice is prohibited.
This new law builds on action Michigan regulators had already taken. In March 2024, DIFS issued a bulletin clarifying that the use of price optimization in insurance ratemaking is considered unfairly discriminatory and is not permitted under Michigan law.
Senate Bill 1013 takes that protection a step further by putting the prohibition into state law and strengthening DIFS' authority to take regulatory action if an insurer uses price optimization. DIFS reviews rate filings for auto, homeowners, and other property and casualty insurance products to help ensure rates comply with Michigan law.
DIFS Director Anita Fox explained that the goal is to ensure Michigan consumers can trust that their insurance rates are based on factors related to the risk of loss or expense, rather than simply on what an insurer believes a particular customer might be willing to pay.
It is also important to understand what this new law does not mean. It does not mean everyone with similar insurance exposures will pay the same rate.
Insurance pricing is complex, and premiums can still vary significantly from one person, household, vehicle, property, or business to another. Insurers can continue to use legally permitted factors related to risk, expected losses, expenses, coverage, and other approved rating considerations. What they cannot do is increase someone's rate simply because data suggests that person is unlikely to shop around or may tolerate a higher premium.
Even with these protections in place, insurance premiums can and will change for many legitimate reasons. Rising repair and construction costs, severe weather losses, medical costs, vehicle technology, claims trends, changes in coverage, and individual risk characteristics can all affect insurance pricing.
A premium increase by itself does not mean price optimization has occurred.
If you receive a renewal with a significant change in premium, ask questions. Your Rathbun Insurance account manager can help review your policy, explain changes when information is available, look for coverage adjustments or discounts, and determine whether comparing options with other insurance carriers makes sense.
That is one of the advantages of working with an independent insurance agency. We can help you understand not only what you are paying, but also what you are purchasing and what options may be available.
Michigan consumers who believe they have been subjected to price optimization or another unfair insurance practice can contact the Michigan Department of Insurance and Financial Services. DIFS can be reached Monday through Friday from 8 a.m. to 5 p.m. at 877-999-6442. Consumers may also submit a complaint online through the DIFS website.
At Rathbun Insurance, we believe consumers should understand their coverage and feel comfortable asking why something has changed. As an independent insurance agency serving the Greater Lansing community and beyond, our role is to advocate for our insureds, help explain their options, and work with multiple insurance carriers to find coverage that fits their individual needs.
Michigan's new prohibition on price optimization reinforces an important principle: insurance pricing should be connected to legitimate insurance considerations, not simply how much a company believes an individual consumer is willing to pay.
If you have questions about your insurance premiums, renewal, or coverage, the Rathbun Insurance team is always here to help.