The Michigan Senate adjourned before Christmas without taking action on a property/casualty insurance bill package already passed by the House of Representatives.
The package would, among other things, give the insurance commissioner more authority over rates and strip insurers of their ability to use occupation, education level or credit scores in underwriting or pricing.
The legislation mirrors recommendations contained in a report by the state’s consumer advocate, Melvin “Butch” Hollowell, in February. Many Democrats and urban lawmakers are supporting it, while many Republicans and the insurance are opposing it.
Insurers had warned that if the measure passed, auto insurers would leave the state, exacerbating insurance problems and unemployment. Insurers employ more than 50,000 people in the state.
“We are extraordinarily pleased that the Michigan Senate did not take up these bills before adjournment. This will give us time to educate legislators on the importance of underwriting tools in not only assessing risk but keeping rates low,” said Erin Collins, Mid-Atlantic state affairs manager for the National Association of Mutual Insurance Companies (NAMIC).
The bill package was introduced earlier this month and was quickly approved by the House Insurance Committee, and then the full House.
Supporters believe that the legislation will make insurance pricing fairer and help control prices, which they contend have been going up especially for urban motorists despite fewer miles being driven and fewer motor vehicle deaths.
“This is a great day in the state of Michigan,” said Rep. Shanelle Jackson, D-Detroit, after the House passed the bills. “This chamber is … protecting the pocketbooks of our citizens.”
“Detroit residents are sick and tired of the insurance companies jacking up their rates because of factors like credit history, occupation or education level -– these are non-issues when it comes to one’s ability to drive,” said Rep. Bert Johnson, D-Detroit. “Our plan brings some much-needed relief for our residents and reforms that will ensure that insurance companies play by the rules.”
The package includes bills that would require the insurance commissioner’s approval before any new rates could go into effect and that would prohibit rate increases on good drivers who are not at fault in accidents.
Another bill would create a low-cost pilot program for low-income residents with good driving records.
Still another would restrict the hiring of former insurance commissioners by the insurance industry.
The package has been opposed by the Michigan Insurance Coalition, which represents insurers. They say the bills would cost consumers more, create a bonanza for trial lawyers, and drive insurance companies and their jobs to other states.
The industry contends that the bills fail to address one of the major causes of rising insurance costs in Michigan: the state’s unique mandate of unlimited lifetime medical benefits to people injured in car accidents.
Dr. Robert Hartwig, president of the industry’s Insurance Information Institute and an economist, told lawmakers that no other state in the country provides unlimited no-fault benefits because to do so is expensive.
“So what is driving Michigan’s auto insurance costs up in both absolute and relative terms? While the cost drivers influencing the price of auto insurance in Michigan are similar to those in other states in most respects, there is one glaring exception—its unlimited threshold for no-fault auto insurance claims,” Hartwig testified before the Michigan House Insurance committee.
Hartwig noted that the average no-fault auto insurance claim in Michigan rose 250 percent, to $31,883 in 2007 from $9,103 in 1998, because the “system operates with virtually no checks or balances.” Unlike other states, Michigan has no medical fee schedules, no utilization controls or treatment protocols, and no state insurance fraud bureau to prosecute abuse in the no-fault system.
The average auto insurance policyholder in Michigan spent $928 in 2007, compared with $795 for the typical U.S. driver in that same year, making Michigan’s rates the eleventh highest in the nation.
Hartwig said that efforts to either restrict or ban certain underwriting tools, such as credit-based insurance scores, will not lower auto insurance premiums. Likewise, he said, efforts to create low cost policies without also reducing the benefits provided are doomed to failure. Such programs implicitly require subsidies, he stated.