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3 things car insurance companies do that raise your prices

February 25, 2015 by Steven M. Gursten

Time to stop credit scoring, stop passing along MCCA assessment costs and stop penalizing innocent drivers in car accidents caused by others


Yesterday, I discussed an audacious plan to lower  auto insurance prices by capping these prices at $200 below the national average for car insurance. Critical No Fault PIP benefits and legal protections would be saved for auto accident victims. The savings would be possible by finally empowering the Michigan Insurance Commissioner to stop auto insurance companies from charging excessive prices for auto insurance to consumers. As I showed yesterday, the available evidence clearly suggests insurers are charging excessive prices.

Today, I want to talk about three of the more ugly insurance industry practices in Michigan, and why they should be stopped. These practices also result  in consumers paying more for auto insurance than they should.  As a No Fault insurance attorney in this state, if I could pick the ugliest practices and put a stop to them, it would be the following:

  1. End credit scoring by insurance companies. It’s just legalized discrimination.
  2. Stop auto insurers from passing along Michigan Catastrophic Claims Association (MCCA) assessment costs to consumers.
  3. Don’t allow insurance companies to raise a person’s auto insurance rates for crashes he or she didn’t cause.

I will discuss each in greater detail below.

1. End credit-scoring!

Studies have shown that credit scoring (i.e., an auto insurance company’s use of a person’s credit score to set prices) results in higher auto insurance prices for consumers with poor credit.

For instance, a study by the consumer website WalletHub showed that consumers with poor credit paid approximately 116% more with Allstate; 80% more with Farmers; 48% more with Progressive; and 45% more with State Farm.

Similarly, in a previous study by the Consumer Federation of America, it was revealed that auto insurance prices for State Farm and Allstate were (on average) 127% and 39% higher, respectively, for consumers with poor credit scores as compared to the prices charged to consumers with excellent credit scores.

Recently, two bills have been introduced in the Michigan House of Representatives, House Bill 4117 and House 4127, which propose the elimination of credit-scoring.

To learn more about the extent to which credit scoring can affect auto insurance pricing, please check out the following Michigan Auto Law blog posts:

2. Stop auto insurers from passing along MCCA assessment costs to consumers.

Michigan auto insurance consumers could save as much as $186 annually if auto insurance companies were no longer required (or, even, allowed) to pass along MCCA assessment costs to consumers in the form of higher prices.

Currently, the Michigan Catastrophic Claims Association’s annual assessment (which is used to pay for No Fault medical benefits for catastrophically injured Michigan auto accident victims) is $186.

Under existing Michigan No Fault law, the MCCA assessment (which is also referred to as a “premium”) is imposed on and paid by the auto insurance companies. But the auto insurance companies recoup the assessment costs by passing them along to consumers:

“Premiums [MCCA assessments] charged [to auto insurance companies by the MCCA] shall be recognized in the rate-making procedures for insurance rates in the same manner that expenses and premium taxes are recognized.” (MCL 500.3104(22))

In 2014, former Rep. Phil Cavanagh (D-Redford Township) introduced House Bill 6095, which proposed eliminating the “passing along” of MCCA assessment costs to auto insurance consumers. Unfortunately, HB 6095 “died” due to inaction at the end of the 2013-14 legislative session.

3. Don’t raise a person’s auto insurance rates for a car accident that he or she did not cause.

Why should a person’s auto insurance rates go up – in some cases by hundreds of dollars – for a car crash that wasn’t their fault?

It shouldn’t.

For that reason alone, Michigan’s Insurance Code should be amended to specifically prohibit auto insurance companies from increasing a person’s auto insurance rates for car crashes that the person was not “substantially at fault” in causing.

In 2014, Rep. Brian Banks (D-Detroit) introduced an excellent bill on this issue. In House Bill 5517, Rep. Banks proposed to:

Prohibit an “automobile insurer” from setting rates and/or premiums “based on an accident that an insured or applicant for insurance was involved in if the insured or applicant for insurance was not substantially at fault in the accident.”

Under the existing Insurance Code, a person is “substantially at-fault” when the “person’s action or inaction was more than 50% of the cause of an accident.” (MCL 500.2104(4)) Nothing in HB 5517 would have changed the meaning of “substantially at-fault.”

Unfortunately, HB 5517 “died” due to inaction at the end of the 2013-14 legislative session.

I know firsthand just how frustrating this can be for people. As an attorney who helps people injured in car accidents caused by others, I see what this does. People who are completely innocent but who were rear-ended or otherwise involved in car accidents caused by other drivers are astonished when they see their next car insurance premium spike upwards. Adding insult to injury, as most people do not carry collision coverage and can only recover $1,000 for vehicle damage under the Michigan mini tort law, they also often have to personally pay thousands of dollars to repair car damage caused by someone else who wasn’t paying attention.

Tomorrow, I’ll discuss stopping No Fault insurance fraud – and the problem of ambulance-chasing lawyers.

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