Michigan Court Upholds Denial of Basic Home Insurance Rate Hike

In a unanimous decision this week, the Michigan Court of Appeals upheld a 2008 order by Insurance Commissioner Ken Ross that denied the state’s property insurer of last resort an 18.9 percent rate hike.

In reversing the lower court, a Court of Appeals panel found that Ross properly applied Michigan law when he ruled that Michigan Basic Property Insurance Association’s ratemaking was flawed.

The court’s decision will also affect the state’s review of a 50.8 percent rate hike requested by the Michigan Basic in December of 2009 for identical reasons, according to the Office of Financial and Insurance Regulation.

Michigan law provides that Michigan Basic’s rates for home insurance must be equal to the weighted average of the 10 voluntary market insurer groups with the largest premium volume in Michigan. According to OFIR, Michigan Basic has traditionally averaged the “base rates” of the top 10 insurer groups, while OFIR maintains state law requires them to use average “rates” not “base rates.”

Since 1996, OFIR says that base rates have been driven up by insurers so they can deeply discount the rates of persons with high insurance credit scores. Base rates, which once had some meaningful correlation with expected losses, have now become just a starting point in a methodology that arrives at expected losses.

“This is an important victory for Michigan consumers,” Ross said. “Michigan Basic exists to provide access to affordable homeowners coverage—its aggressive efforts to make coverage more expensive than what Michigan law requires is simply unconscionable.”

The court upheld Ross’ order that requires Michigan Basic to calculate their home insurance rates based upon average premium charged by the top 10 insurer groups and not the base rates of the top 10 insurer groups.

Topics Pricing Trends Michigan Homeowners