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With Michigan’s insurance reform laws coming into effect, several experts have discussed how the rules will impact the industry both in-state and elsewhere.
The legislation – passed into law last week – allows Michigan drivers to either partially or completely opt out of personal injury protection. It prohibits insurers from refusing or limiting insurance coverage based on a driver’s location (in a practice known as “redlining”). The rules also prevent insurance companies from setting rates based on gender, marital status, home ownership, education level, occupation, zip codes, or credit scores.
Although the bill bans the use of credit scores, there is no language that prohibits insurers from using aspects of an individual’s credit history to set rates. Insurers are also allowed to group auto insurance risk by territory – a loophole critics say negates the ban against using zip codes as a pricing factor.
Some believe the bill could set a precedent for other states.
“This would put Michigan in sort of a leadership role - granted, they were dragged kicking and screaming,” Consumer Federation of America director of insurance J. Robert Hunter told MLive.
Hunter mentioned that other states have been banning insurers from using one or more non-driving factors in pricing, but it is “rare” for a state to put a blanket ban on multiple factors all at the same time.
Others believe the legislation could lead to more issues down the road.
Robert Passmore, assistant vice-president of personal lines policy at American Property Casualty Insurance Association, believes the bill’s language would create “one of the more restrictive regimes” in the US for insurers to follow. Passmore added that limiting the tools insurers can use to differentiate risk between customers “squeezes everybody more into the middle” instead of lowering rates.
“Addressing rating factors doesn’t do anything about addressing the underlying cost that everybody pays,” he warned. “There’s still going to be costs, no matter how you limit or allow the rating factors.”
Striking down certain non-driving factors “might have truly helped drivers living in high cost areas like Detroit,” but the law still allows insurers to use credit history and geographic location to determine rates, reminded Robert M. Raitt, chairperson of the State Bar of Michigan’s Negligence Law Section in a statement. He also warned that the provisions of the bill are “only smokescreens” if credit history and zip code-based insurance pricing continue through technicalities.
