Since the Michigan Legislature passed the new No-Fault law earlier this summer, the auto insurance companies in this state have been scheming on how to get around many of the new restrictions imposed by the new law.
The centerpiece of this strategy is to increase Michigan car insurance rates right now at renewal time so that when auto insurers have to provide “savings” under the new auto law after July 1, 2020, they can do so without cutting into profits.
The insurance companies are also creating new names for existing companies and then filing and incorporating as these new entities so they will have no ratings history. Without a ratings history, the insurance companies have nothing from previous high premium levels to cut from to provide the new mandatory savings under the new law.
There are several other aspects of the new auto No-Fault law that are creating a Wild West, break-all-the-rules, the intent of the law be damned mentality among Michigan’s auto insurance companies:
First: The savings that auto insurers are required to provide to drivers and consumers are not scheduled to take effect now. The savings are guaranteed only for auto insurance policies issued or renewed after July 1, 2020.
That means that insurers have a little more than a year from when the new No-Fault law was passed until the new savings requirements take effect. This means the insurers are increasing Michigan car insurance rates significantly now for consumers to get their rates high enough so that when the savings do take effect the insurers can still enjoy the same high profit margins that they were before.
Add to this that the so-called promised “savings” won’t amount to much, if any, savings for most consumers even without insurance companies now increasing Michigan car insurance rates for people in the year before they are required to cut these same rates. We will not see any real savings now or at any time in the future.
Second: Because the “file and use” system for setting rates continues to be legal in Michigan right now, the Insurance Commissioner is still doing nothing to stop auto insurers from gouging drivers by increasing Michigan car insurance rates and forcing them to pay more now. The new No-Fault law puts an end to the long-standing “file and use” system which allows insurers to avoid scrutiny of their rate increases by permitting them to hike rates as soon as they file with the Insurance Commissioner. But the end to “file and use” doesn’t actually come until July 1, 2020. Only after July 2020, will insurers have to wait 90 days before they can put a new, increased rate into effect. Anyone else feel like the insurance company lobbyists and the many Republicans working with the auto insurers were playing chess while the people negotiating this legislation on behalf of the Whitmer administration were playing checkers?
Third: The Insurance Commissioner is refusing to use her powers under the Insurance Code to stop insurers from charging “excessive” rates in violation of MCL 500.2109(1)(a), even as they increase Michigan car insurance rates for consumers and drivers in the year before the mandated rate reductions take effect in an obvious attempt to frustrate what was supposedly the primary purpose of the new auto law – rate relief for consumers.
Fourth: Insurers are still using discriminatory non-driving factors when setting auto insurance rates.
Before the new law was passed, Gov. Whitmer and other politicians in the Lansing loudly condemned insurers’ use of non-driving factors such as gender, marital status, where a person lives, whether a person owns a home and what a person’s credit score in their rate-setting processes. While the new No-Fault law prohibits insurers from basing Michigan car insurance rates on such non-driving factors as sex, marital status, home ownership, education level attained, occupation, the postal zone in which the insured resides and credit score, the auto insurance companies are exploiting the fact that this prohibition does not stop them from using these discriminatory non-driving factors until July 1, 2020.
Additionally, auto insurers already have their work-arounds in place for when the non-driving rate-setting factors become prohibited in 2020. For instance, even though the new No-Fault law will prohibit insurers from considering “the postal zone in which the insured resides,” auto insurance companies will likely get around this prohibition by basing rates on territories because the new law still states that “automobile insurance risks may be grouped by territory.” (MCL 500.2111(5)) Significantly, Senate Bill 499, which was introduced on September 10, 2019, would eliminate this “territory” loophole. Another pernicious non-driving factor that contributes to higher rates for drivers is “price optimization” which Gov. Whitmer had said she wanted to see eliminated. “Price optimization” is the process whereby auto insurers use data about their customers to determine how high premiums can be increased before customers reach their breaking points and decide to take their business elsewhere. Sadly, this non-driving factor was not prohibited by the new No-Fault law so insurers are free to continue using it to gouge drivers. However, Senate Bill 498, which was introduced on September 10, 2019, would outlaw price optimization by providing that a “rate is unfairly discriminatory as to the premium charged to the risk if the rate is established through or impacted by price optimization.”
IMPORTANT – CREDIT SCORES: Under the new No-Fault law, auto insurers will be prohibited from using a driver’s “credit score” in determining what rate to charge him or her starting on July 1, 2020. (MCL 500.2111(4)(g); 500.2162; 500.2105(6)) I have heard it said that the prohibition on “credit scores” as a non-driving factor will not stop auto insurers from using other credit-based factors such as credit information, credit reports and insurance scores to hike up drivers’ rates. However, I believe drivers have a good argument that those factors will be prohibited under the new No-Fault law. Specifically, none of those factors are identified as allowable rating-setting factors in MCL 500.2111 and the new No-Fault law clearly states that an auto insurer “shall not establish or maintain rates . . . for automobile insurance based on a factor that is not allowed . . . under section 2111.” (MCL 500.2105(4))
IMPORTANT – LOOPHOLE CONTINUES TO ALLOW AUTO INSURERS TO DISCRIMINATE AGAINST WOMEN AND WIDOWS: A legal loophole that continues to exist under the new No-Fault law will allow Michigan auto insurance companies to continue discriminating against women and widows by charging them higher insurance rates. For many years, Michigan auto insurers have been (and they will continue to be) prohibited from using “sex” and “marital status” as non-driving factors in their rate-setting processes. (MCL 500.2111(4)) But for just as many years, auto insurers have been able to work-around the prohibition by using a legal loophole that actually allows insurers to charge higher rates to women and widows. Specifically, the loophole states that “sex” and “marital status” are not off limits as rate-setting factors when an auto insurer is issuing policies on a “group” basis. (See the pre-June 11, 2019, version of MCL 500.2105(2)) Sadly, the injustice visited on women and widows as a result of this loophole will continue under the new No-Fault law, at least, through July 2020. The new No-Fault law does close the loophole by prohibiting rate discrimination against women and widows in auto insurance policies written on a “group” basis, but the loophole closure does not take effect until July 1, 2020. (MCL 500.2105(4) and (6))
Michigan Car Insurance Rates Increase 2019: Eliminating promised savings for drivers
By increasing Michigan car insurance rates sky-high now, auto insurance companies can avoid feeling the pinch of the required savings after July 1, 2020, and quite likely continue to maintain whatever profit margin they choose.
Under the new No-Fault law, Michigan drivers will be able to choose new coverage levels for their No-Fault PIP medical benefits starting with policies issued or renewed after July 1, 2020. Drivers with Medicaid can opt for a $50,000 coverage level and other drivers can choose from coverage levels of $250,000, $500,000 and unlimited coverage. Similarly, drivers with Medicare will be able to opt-out of No-Fault PIP medical benefits altogether. (MCL 500.3107c(1); 500.3107d(1) and (7)(c))
Additionally, once those new coverage levels become available, the new No-Fault law will require insurers to provide savings in the amounts of 45%, 35%, 20%, 10% and 100%, respectively, from drivers’ No-Fault PIP rates that “were in effect for the insurer on May 1, 2019.” (MCL 500.2111f(1), (2) and (3))
Michigan Car Insurance Rates Increase 2019: Exploiting ‘file and use’ as long as they can
The “file and use” system for filing rate increases has effectively given insurers free rein to increase their Michigan car insurance rates whenever they like and without having to worry about scrutiny or oversight by the Insurance Commissioner.
For now, until “file and use” ends in 2020, insurers are taking full advantage of the law to create their profit cushion for when they have to provide savings to drivers in 2020.
Meanwhile, drivers are paying a high price now for zero real savings in the future.
Under the existing “file and use” law, an “insurer may use rates for automobile insurance . . . as soon as those rates are filed.” (MCL 500.2106)
However, under the new No-Fault law, the “file and use” law will no longer apply to auto insurers’ rate filings.
Auto insurance companies will have to “file rates” with the Insurance Commissioner “for approval” and the rate filings will “remain on file for a waiting period of 90 days before [they] become effective.” (MCL 500.2106(2); 500.2108(6))
However, neither the “approval” nor the 90-day waiting period requirements take effect until July 1, 2020. (MCL 500.2105(6))
Michigan Car Insurance Rates Increase 2019: The Insurance Commissioner should be taking action to stop excessive auto insurance rates
Given her obligation to “execut[e] the laws [of this state] in relation to insurance” and her power to issue orders “in the reasonable exercise of discretion,” it seems incumbent on the Insurance Commissioner to take action and stop Michigan’s auto insurance companies from charging “excessive” insurance to drivers. (MCL 500.200 and 500.205)
The Insurance Code prohibits auto insurers from charging excessive rates:
“All rates for automobile insurance . . . shall not be excessive . . .” (MCL 500.2109(1)(a))
One of the factors that determines whether an auto insurance rate is excessive if it “is unreasonably high for the insurance coverage provided.” (MCL 500.2109(1)(a))
Michigan Car Insurance Rates Increase 2019: Using non-driving factors that will soon be prohibited to raise rates now
Michigan auto insurance companies won’t be able to use non-driving factors to increase Michigan car insurance rates forever.
But while they still can, they’re making the most of it – using these non-driving factors that will soon be outlawed to fill their coffers now.
The new No-Fault law prohibits insurers from basing Michigan car insurance rates on such non-driving factors as: sex, marital status, home ownership, education level attained, occupation, the postal zone in which the insured resides and credit score. (MCL 500.2111(4); see also 500.2105(4))
However, the new No-Fault law’s prohibition on the use of non-driving factors in rate-setting does not take effect until July 1, 2020. (MCL 500.2105(6))