Michigan drivers could soon get new protections from a little-known insurance pricing tactic that critics say penalizes people for staying with the same company and not shopping around.
A bill cleared the Michigan Senate that targets "price optimization" — an insurance pricing approach that can increase premiums when an insurer concludes a customer probably will not look for a cheaper policy.
What happened?
Backed by state Sen. Jeremy Moss, the measure now moves to the Michigan House, where it is widely expected to win approval, according to Michigan Public.
Rather than focusing only on standard measures of driving risk, the practice uses detailed data about a consumer's behavior. An insurer might, for example, assess how likely a motorist is to compare quotes and use that information to justify a higher price.
Moss argued that the practice has no place in a state already known for high auto insurance costs.
"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 said, per Michigan Public.
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State insurance regulators at the Michigan Department of Insurance and Financial Services support the measure, saying the agency has already cautioned insurers about price optimization in a previous bulletin.
An insurers' trade group, the Insurance Alliance of Michigan, said it supports a ban on price optimization "in concept" while arguing that current rules already prohibit discriminatory rate-setting.
Why does it matter?
This pricing method can drive up costs even when a person has not become any riskier for a company to insure.
If a company raises premiums simply because it believes a customer is unlikely to switch providers, that driver can end up paying more for reasons unrelated to how they actually drive.
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Consumer advocates say the effects may fall unevenly. Doug Heller, the Consumer Federation of America's director of insurance, warned lawmakers that vulnerable consumers can be hit hardest.
"With price optimization algorithms, insurers gather information about individual policyholders, that may include demographic data, shopping habits, family structure, financial status, and personal activities, to guess which consumers are likely to accept price increases and which consumers will shop around," Heller wrote in a letter to state legislators.
He added that "lower-income consumers, who often have fewer market options, less available time, and lower financial literacy, can be disproportionately targeted by this practice."
What's being done?
Officials said the state is already scrutinizing insurance rate filings for signs that price optimization is being used.
In a statement, the Department of Insurance and Financial Services said, "It has been the Department's practice to closely review all insurance rate filings to ensure that price optimization is not being used."
If enacted, the bill would spell out that prohibition directly in Michigan law.
Heller also told Michigan Public by email that insurers may be masking the tactic behind different labels, such as retention models or tiered rating systems.
As Moss put it, "It's wrong, it's exploitive."
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