Michigan Auto Insurance System, Costs, Insurers Under Fire

February 5, 2009

Michigan’s insurance consumer advocate is charging that drivers are paying a high cost for years of state deregulation of insurance and record insurance company profits.

Gov. Jennifer Granholm has threatened penalties for any insurance carriers that do not go along with a freeze on rates for a year.

The insurance consumer advocate, Melvin Butch Hollowell, in a 335 page report, claims auto insurance has become unaffordable for too many. He is calling for lawmakers to change state law to require that insurers obtain the insurance commissioner’s approval before raising rates and they they consider allowing a low cost auto policy with reduced benefits. Those are among the 10 changes he is recommending.

Hollowell reported that Michigan drivers statewide pay an average premium of $1,067 a year for insurance, second only to New Jersey, and Michigan’s $5,072 average annual urban premium is the highest in the nation, almost $1,200 higher than second place Philadelphia.

Since 1989, Michigan auto insurance premiums have increased at “a staggering rate of 69 percent, the fastest rate of increase in the country,” Hollowell claimed. That’s about 3.6 percent per year over that period.

The report also recommends restricting the use of credit scoring in insurance underwriting, an issue that is currently under review by the state Supreme Court.

Hollowell, who last year held insurance hearings across the state, issued his report along with a letter to Gov. Jennifer Granholm in which he laid out his 10 recommendations for change.

“Simply put, Governor, auto insurance has become unaffordable for a significant and growing portion of our population, at the same time industry profits have skyrocketed to their highest levels in U.S. history, even factoring in the losses from September 11, 2001, and Hurricane Katrina,” he wrote to Granholm.

“Moreover, these rising profits have grown proportionally with a 30-year expansion in industry de-regulation. Today, Michigan has the weakest laws in America for regulating the insurance industry,” he wrote.

The report says that consumers should have more choices under no fault to customize the kind of policy they want and maintains that strengthening oversight of insurance companies will produce a “more transparent and stable insurance environment” for these choices to be offered.”

The report claims that its changes would “significantly reduce costs.”

Granholm cited the report and recommendations in this week’s State of the State address, in which she called for a freeze on auto insurance rates for 12 months to give state lawmakers time to address some of the reforms recommended by Hallowell.

“That report includes smart, specific proposals to give Michigan drivers the choices that citizens in other states have: solid coverage with fair and affordable rates,” she said.

Granholm had a warning for auto insurers that do not comply with the rate freeze. “If an insurance company refuses to freeze rates during this 12-month period, I am directing the Office of Financial and Insurance Regulation to use every administrative tool at its disposal to assure fair and affordable rates for Michigan consumers,” she said.

The Office of Financial and Insurance Regulation has already set up a system to receive notification from each automobile insurer of its intent to comply with the 12-month rate increase freeze.

Insurance carriers are not in the mood to go along with the rate freeze or Hollowell’s recommendations. They wasted no time in taking swipes at the accuracy of Hollowell’s report and at Granholm for what one trade group representative said is “anti-business, anti-consumer grandstanding.” (See related story.)

The 10 recommendations in Hallowell’s report are:

1. Enact a definition of premium affordability that assures that auto insurance rates are available to Michigan consumers at fair and reasonable rates.

2. Require insurance companies to obtain the insurance commissioner’s approval, prior to raising their rates.

3. Give consumers who have purchased collision insurance the right to recover actual repair costs to the vehicle from the at-fault party in an accident.

4. Strengthen the insurance commissioner’s authority to award refunds to consumers, upon a finding that a company has overcharged policyholders.

5. Prohibit the practice of “data mining,” where insurers sell policyholders’ personal information to third parties or “marketing partners,” often without the policyholder’s knowledge or consent.

6. Close the loopholes that allow insurers to use criteria such as credit scores, occupation and level of education.

7. On a pilot basis, consider the option of offering a low cost auto insurance policy, while continuing to provide full health care benefits to consumers.

8. Prohibit the insurance commissioners from working for insurance companies for a period of at least two years after leaving office.

9. Enact tougher penalties for companies who raise a policyholder’s rates, or cancel a policyholder’s policy, after a claim is submitted, when the policyholder is not at-fault. Routine Market Conduct Examinations should be initiated to determine industry compliance with this policy. Furthermore, there should be education to inform consumers that this practice is illegal.

10. Give consumers reasonable oversight authority over company rating practices by requiring companies to prominently publish proposed rate increases on the insurance regulator’s Web site and by allowing consumers to challenge proposed rate increases, before they go into effect.

Topics Carriers Legislation Auto Michigan Policyholder

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