A Detroit senator is proposing a measure that would cut down on the variables used by insurance companies to set rates, but have the potential to distort market pricing because it would not take “environmental factors” into consideration.
Senate Bill 312, which was sponsored by Senator Morris Hood III, will reduce the criteria for setting premium rates to anticipated repair costs, civil infraction history and insurance claims history.
Insurers, of course, currently factor in much more than that in their pricing, including the number of years the motorist has been driving, the area of residence, insurance-based credit scoring, and miles driven.
“What we’re looking at is just making insurance rates fair to everyone,” said Hood in a report by local publication
M Live.
“If I have no claims, if I have no infractions on my drivers’ license, then I’m not a higher risk. And so that should be reflected in my premiums.”
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However, Pete Kuhnmuench, executive director of the Insurance Institute of Michigan, told the publication that the proposed law could distort insurance prices because it does include other significant factors in the cost equation.
“Unfortunately our urban ratepayers pay more because of what I call the environmental factors,” he pointed out.
Kuhnmuench explained that the two most significant of these are crime and density. He explained that risk in urban areas is higher due to the raised probability of crime, such as cars being broken into or stripped, or stolen.
The population in urban areas is likewise denser, and with more motorists on the road, there is more congestion and more accidents are likely to occur.
“That means outstate ratepayers... are going to pay more in order to subsidize the rates in high-risk areas,” he said.
Furthermore, he pointed out that the pricing distortions would be an additional squeeze on an already tight market where margins are under pressure from the current no-fault Michigan system.
“Unfortunately, Michigan’s auto no-fault system is very challenging in the marketplace. We’ve had a number of companies exit the marketplace because of the difficulty of gaining any sort of profit out of it,” Kuhnmuench added.
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