Auto Insurance Legislation

Misguided Auto Legislation Threatens Consumers, Jobs

Michigan consumers should be deeply concerned by legislation passed in the House and now being considered in the Senate that proposes a variety of changes to auto insurance law and holds the potential for disastrous consequences on insurance costs and the state’s economy.

Around the nation, governors and legislative leaders are meeting with insurance company officials and asking them to locate their businesses in, and bring jobs to their states. But with this legislation, Michigan lawmakers are sending a message to insurers here and around the nation that our state simply is not interested in attracting their investment.

The bills were quickly passed through the House Insurance Committee and brought before a full House vote without thorough consideration of the negative consequences for consumers. The Coalition is offering to participate in a workgroup process with legislators and is encouraging policymakers to protect Michigan’s future by focusing on accurate, factual information.

What Consumers and Lawmakers Need to Know

Supporters of the proposed auto insurance reforms have greatly misrepresented several critical facts about Michigan’s auto insurance marketplace, but lawmakers and consumers should be aware of the following facts:

• Michigan’s annual average auto premium for liability and physical damage coverages combined is 12th highest in the nation – not the highest as supporters of the legislation have claimed. Given that Michigan’s mandated auto insurance benefits, including the unlimited no-fault injury benefits, are considered the most expensive in the nation, the average price paid by driver in the state is extremely reasonable.
• Michigan auto insurers are not making enormous profits. In fact, personal auto insurers in Michigan suffered a 10-year underwriting loss of 19.2% of earned premiums, while their 10-year operating return resulted in a loss of 2.4% percent of premiums. Michigan operating and underwriting profits have been substantially lower than nationwide averages.
• Michigan property casualty insurance companies provide thousands of stable, much-needed jobs in the state. In 2007, they paid out more than $8.7 billion in claims and paid more than $200 million in state premium taxes, providing critical tax dollars for state and community development. Legislation that could drive businesses out of the state would only lead to a further deterioration of Michigan’s economy.
• The public benefits under a system that allows for greater rate competition than one that requires state approval. Prior approval regulation does not mean lower rates. Instead, less restrictive rating systems tend to cost consumers less - not more - money.
• Credit-based insurance scoring has been shown to benefit consumers because it allows them to secure lower insurance costs. In Michigan, credit-based insurance scoring is used only to provide discounts for insurance customers. Credit-based insurance scores are not used in Michigan to apply a surcharge or to determine whether a person can be insured by the company. And despite the economy, credit scores are staying stable.  The Michigan Supreme Court ruled on July 8, 2010 that insurance scoring is allowable under Michigan law and the insurance commissioner exceeded her authority when she attempted to ban the practice. The court said "It is difficult to see how offering discounts to some insureds on the basis of good insurance scores is inconsistent with the Insurance Code's general purpose of availability and affordability of insurance for all consumers."
• Eliminating geography as a factor in determining insurance rates could reduce rates for about 25 percent of drivers – but could raise them for 75 percent of drivers across Michigan, according to an analysis by the Property Casualty Insurers Association of America (PCI).