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Will the Democrats’ insurance reform plan make car insurance more affordable?

May 14, 2014 by Steven M. Gursten

New plan  cracks down on ‘excessive’ insurance prices, prevents rate increases for car accidents without fault, requires insurers to justify higher rate hikes

Rep. Scott Dianda (D-Calumet)
Rep. Scott Dianda (D-Calumet) addresses cost of No Fault insurance in recent Democratic package of insurance reform bills.

Yesterday, I discussed the consumer protection aspects of Michigan House Democrats’ recent 14-bill package for reforming our auto insurance system that was recently announced on May 1, 2014.

The plan also addresses important ways to improve affordability of auto insurance for consumers, which I will discuss today.

Rep. Scott Dianda (D-Calumet) said the reform plan’s “affordability” measures – which he described as “common sense changes” to Michigan’s auto insurance system “to address the cost of insurance in Michigan – would accomplish the following:

  • Stop rate  hikes for automobile accidents that the insured customer did not cause: By prohibiting an auto insurance company from raising a consumer’s auto insurance premium based on a car accident “if the [consumer] was not at fault in the accident.” As an attorney, I would add this is one of the biggest complaints I hear from people. People are outraged when they learn that they can be stopped at a traffic light and rear-ended by someone not paying attention, and then they have their insurance rates jump higher.
  • Make it more difficult for auto insurance companies to charge “excessive” auto insurance rates: By redefining “excessive” as rates that are “unreasonably high for the insurance coverage provided.” (See MCL 500.2109(1)(a))
  • Eliminate auto insurers’ “file and use” practice: By requiring auto insurance companies to justify rate increases,” i.e., demonstrate that the proposed increased rates are not “excessive,” before the rates can be imposed on drivers. (See HB 5461, introduced by Rep. Thomas F. Stallworth III (D-Detroit) on April 23, 2014, which provides a 15-day waiting period for the Insurance Commissioner to either approve or disapprove auto insurers’ proposed rate increases.)
  • Stop credit scoring and discrimination: By prohibiting auto insurance companies from engaging in the “unfair or deceptive act or practice” of setting and/or raising auto insurance rates based a person’s employment, trade, business, occupation, profession, education level, or “credit history or lack of credit history.” (See House Bill 5000, which was introduced by Rep. Alberta Tinsley Talabi (D-Grosse Pointe) on September 24, 2013)

(Source: May 1, 2014, statement on the Michigan House Democrats website)

Rep. Dianda also stated:

“We need to ensure that insurance customers aren’t getting gouged … These bills take away excuses and force insurers to justify themselves before they jack up their prices.”

Improving auto insurance ‘affordability’

The affordability measures in the House Democrats’ auto insurance reform plan are excellent.  If they are ever passed (another thing entirely in our post-Citizens United world where insurance companies and other corporations can now give unlimited political donations to politicians) they will be very helpful to consumers.

To advance the cause even further – and, hopefully, faster – I would also propose the following additional insurance reforms (many of which I’ve previously discussed) for improving auto insurance affordability for consumers:

  • Demand that Michigan’s No Fault auto insurance companies provide value or refunds by enacting a No Fault 80/20 loss ratio rule: Under the 80/20 rule, No Fault auto insurers would be required to spend no less than 80% of their insureds’ premium on their insureds’ No Fault claims … or be forced to refund money to their insureds in the form of rebates. (To discover more, please check out Michigan Auto Law’s November 22, 2012, blog post, “Michigan needs an ‘Affordable No-Fault Act’ to prevent price gouging by auto insurance companies”)
  • Michigan’s insurance commissioner should conduct an updated study: Of the excessiveness (or non-excessiveness) of Michigan auto insurance prices.
  • New Buyers Guide: The Director of the Department of Insurance and Financial Services (DIFS) should resume publication of an annual “Buyers’ Guide to Auto Insurance.”
  • More insurance information: The Director of the Department of Insurance and Financial Services (DIFS) should include in the DIFS’s “Annual Report” the “Michigan Direct Premiums Written” and “Michigan Direct Losses Paid” information for the “Top 20 Writers” of auto insurance in Michigan (just as the information is included for Property & Casualty and other lines).

To discover more, check out Michigan Auto Law’s blog post, “An open letter to Gov. Snyder regarding Michigan No Fault reform.”

In tomorrow’s blog post, I will discuss the “transparency” aspect of the Michigan House Democrats’ plan for auto insurance reform.

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