Democratic lawmakers in Michigan are promoting proposals they say would make auto insurance more affordable and strengthen consumer protections in the state. Opponents including the insurance industry say the proposals would drive up costs for customers and are a political stunt geared toward the 2010 elections, according to Associated Press reports.
The Democratic proposals would require that companies get prior approval from the state insurance commissioner before raising rates. A driver’s education level or credit history could not be used as factors in determining rates.
The proposed initiative would allow Michigan voters to weigh in on consumer-oriented insurance reforms that have saved California drivers an average of $3 billion per year since being enacted in 1988, according to consumer advocacy groups Consumer Watchdog and Consumer Federation of America (CFA).
Those groups said a 2008 CFA study that reviewed insurance regulations around the country and determined that the California system, on which the Fair Affordable Insurance Rates (FAIR) proposal is based, has been the most effective law in the nation in creating an auto insurance market that is competitive, has low rates and protects consumers from abusive insurer practices.
They maintain that auto insurance rates in Michigan are around 12 percent higher than the national average. The proposal, according to the consumer advocacy groups, would reduce rates in Michigan by 20 percent. It would require insurers to base rates primarily on a motorist’s driving record rather than factors like their ZIP code or marital status, which currently dominate the pricing structure of many insurers.
The Property Casualty Insurers Association of America (PCI), however, says Michigan’s auto premium rankings, industry profits, marketplace competition and other insurance issues have been misrepresented. The group discounted what it called “so-called auto insurance reforms” recommended by Insurance Consumer Advocate Melvin “Butch” Hollowell.
In a statement released by the insurer trade group, PCI highlighted the following about Michigan’s auto insurance environment:
- Michigan’s no-fault system provides for the highest benefits in the country, but Michigan’s annual average auto premium for liability and physical damage coverages combined is 12th highest in the nation. Given that Michigan’s no-fault injury benefits package is unlimited, the average price paid by driver in the state is extremely reasonable. Michigan is the only state in which no-fault medical benefits have no dollar limit.
- Michigan auto insurers are not making enormous profits. In fact, personal auto insurers in Michigan suffered a 10-year underwriting loss of 19.2 percent of earned premiums, while their 10-year operating return resulted in a loss of 2.4 percent percent of premiums. Michigan operating and underwriting profits have been substantially lower than nationwide averages.
- Michigan property casualty insurance companies provide thousands of stable, much-needed jobs in the state. In 2007, they paid out more than $8.7 billion in claims and paid more than $200 million in state premium taxes, providing critical tax dollars for state and community development.
- The public benefits under a system that allows for greater rate competition than one that requires state approval. Prior approval regulation does not mean lower rates. Instead, less restrictive rating systems tend to cost consumers less — not more — money.
Sources: Associated Press, Consumer Federation of America, PCI