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Michigan Territorial Rating Bill Could Raise Rates for Most Consumers

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Legislation supported by Detroit-area lawmakers, which seeks to lower insurance costs in their city, could increase premiums up to 60 percent for other Michigan consumers by prohibiting insurance companies from using geographic territories in determining automobile and homeowners rates, according to the Property Casualty Insurers Association of America.

“If territorial rating was eliminated rates could go up an average of 25 percent for just over half of homeowners and 15 percent for 60 percent of drivers,” said Michael Harrold, PCI vice president and regional manager, in a written statement. “It is indisputable that insured losses and expenses are higher for some areas compared to others. Ignoring this fact would create subsidies where policyholders living in higher-cost areas pay less for insurance, while those in lower-cost areas pay more.”

PCI testified in opposition to Senate Bill 26 at the Michigan Senate Banking and Financial Institutions committee hearing. “Because insurance loss data varies broadly among different geographical areas in Michigan, there is a need to make territorial distinctions for rating purposes,” said Harrold highlighting the differences in automobile and homeowners insurance costs across the state.

PCI conducted a study that analyzes the insured loss experience contributing to the price of both auto and homeowners insurance in Michigan. The study found that the cost for Michigan auto insurers to offer full coverage protection to those in Detroit is more than three times the cost to provide coverage to those in the Upper Peninsula.

Loss costs in Detroit are 72 percent more than the statewide average. “Such a vast dissimilarity in auto loss data based on exposure to risk is compelling justification for creating appropriate distinctions among different geographical areas,” said Harrold.

For homeowners, claim frequency plays a major role in contributing to insurance loss costs. Detroit residents are about two-and-half times more likely to submit property insurance claims than residents in the Northern counties of the Lower Peninsula. The study found that residents of Detroit are 63 percent more likely to file a homeowners claim than the statewide average. In addition, the study found that the average cost per claim for homeowners in Detroit was almost three times higher than that in Lansing.

“While we understand the desire to address the affordability of insurance rates in urban areas, eliminating territorial rating is not the solution,” said Harrold. “Location matters – as a result, it is important for insurers to consider geographic factors in order to maintain an equitable pricing system that accurately predicts a consumer’s risk of loss.”

PCI added that a related bill has been introduced. MIS26, Prohibits Home Insurance Rates From Being Based on Territory or Location of the Risk.

PCI is composed of more than 1,000 member companies, representing a cross-section of insurers with companies that write 50.8 percent of the U.S. automobile insurance market and 39.6 percent of the homeowners market.

Source: Property Casualty Insurers Association of America

PCI added that a related bill has been introduced. MIS26, Prohibits Home Insurance Rates From Being Based on Territory or Location of the Risk.


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