MI | The Michigan Department of Insurance and Financial Services has issued Bulletin 2024-09-INS.
This bulletin addresses the practice of “price optimization” and informs property and casualty insurers writing business in Michigan that the use of price optimization in ratemaking is not permitted under Michigan law.
Price optimization generally refers to an insurer’s practice of varying premiums based upon factors that are unrelated to an insured’s risk of loss or expense to charge the highest price that an insured will tolerate. Often, but not always, it involves data analysis as a method of predicting when an insured will seek coverage from another insurer when the new or renewal premium increases too much. Price optimization includes insurers using an individual insured’s response to previous premium increases to determine how much of a premium increase the insured will tolerate at renewal. In some circumstances, insurers use a “price elasticity of demand” model in which similarly situated insureds are charged differing premiums for the same coverage based upon the insured’s likelihood of switching to another insurer.