Insurers: Michigan officials launched a war with Crackdown,

(BestWire Services Via Acquire Media NewsEdge) In Michigan, unemployment stands at 11.6%. The automobile industry, the state's traditional economic backbone, is pining for federal bailouts. Meanwhile, automobile insurers find themselves engaged in running battles over what their industry will look like in coming years.

Insurers are squaring off against a governor who wants them to freeze rates and an insurance consumer advocate who wants to see a whole new regulatory regime imposed on the industry. One year into his job, Butch Hollowell is being described as "energetic" and "very radical" for his proposals, which some in the industry say are more politically motivated than economically inspired.

While 15 auto insurers have agreed to Gov. Jennifer Granholm's call for a one-year halt on rate increases, according to state insurance regulators, these companies amount to less than a 5% market share. "They're not exactly beating down the doors to keep the commissioner happy," said John Birkinbine, assistant vice president, Midwest region for the American Insurance Association.


After holding a series of statewide auto insurance hearings, Hollowell, the state's first automobile and home insurance consumer advocate, recently proposed 10 steps for overseeing the industry. These include requiring prior approval of insurance rates, barring the use of credit-based insurance scoring, strengthening the authority of regulators to award refunds to policyholders and redefining "premium affordability" (BestWire, Feb. 5, 2009). Hollowell is currently working with members of the state House of Representatives to turn those recommendations into legislation to be heard in the coming months.

To Hollowell, a time of economic crisis is the opportune moment to pursue an agenda based on the premise that insurance rates are too high and the insurance industry too powerful in the state. Insurers "are doing fine" -- and that's not good news for consumers, Hollowell said. He added, "We are absolutely focused on doing what we can to protect consumers' pocketbooks." To some in the insurance industry, that sounds more like political opportunism than regulatory planning. Insurers are being unfairly singled out as an unpopular target due to the poor economy, they said. Birkinbine said state officials are acting like unpopular politicians who "are starting a war to take people's minds off of it." Insurers are incensed over a decision by the Granholm Administration's Office of Financial and Insurance Regulation to deny rate filings that use credit-based insurance scoring as a factor (BestWire, March 12, 2009). While an August 2008 state Court of Appeals ruling overturned a lower-court decision preventing the state from banning the practice, both sides in the case have petitioned the Michigan Supreme Court to take the case. Insurers are considering additional legal action to block the disallowals.

Between the rate freeze call and the insurance-scoring stick, "Companies are being asked to do what's not a sound practice," said Ann Weber, vice president, regional manager and counsel at the Property Casualty Insurers Association of America. What's needed are not new burdens on insurers, she said, but more choices in coverage -- including low-cost, minimalist policies like those proposed in the state House last year (BestWire, April 28, 2008).

Birkinbine pointed to a 2005 Wayne State University study, commissioned by state insurance regulators, that showed insurance rates were not excessive. Under the state's prior-approval system, he said, state officials have only themselves and their predecessors to blame if they think rates are too high.

A request to Granholm's office for a response to the criticism was referred to Hollowell's office.

Hollowell points to his own report, which makes the case that Michigan drivers are paying among the highest rates in the nation while the insurance industry has raised rates 69% since 1991 (BestWire, Feb. 5, 2009). According to 2006 National Association of Insurance Commissioners data, Michigan drivers paid an average of $1,068 for liability coverage, the 12th-highest rates in the nation.

"The industry's had Lansing in a headlock for 30 years and it's time we loosen it," Hollowell said. "The industry's had a good run for 30 years." Birkinbine said he expects legislation to follow the pattern of 2008's flurry of auto insurance bills -- they'll pass in the House and halt in the Senate. "It became such a blatant political move the Republicans in the Senate said they wouldn't support them," he said.

Hollowell said momentum is on his side. "I'm optimistic that this process is moving forward ... and that we'll see some relief for Michigan consumers by the end of the year," he said.

In 2007, the top five writers of private passenger auto insurance in Michigan, according to A.M. Best Co. state/line product information, were: State Farm Group, with 18.3%; Auto Club Group, with 16.5%; Auto-Owners Insurance Group, with 9.1%; Progressive Insurance Group, with 8.1%; and Hanover Insurance Group Property and Casualty Cos., with 7.9%.

(By Sean P. Carr, senior associate editor, BestWeek: Sean.Carr@ambest.com) Copyright ? 2009 A.M. Best Company, Inc.