Michigan Bill Would Abolish Territorial Rating

A Michigan legislative proposal to abolish the use of place of residence as a factor in determining insurance rates would increase costs for 75% of drivers, according to the Insurance Institute of Michigan.

A bill introduced by state Sen. Martha Scott, D-Detroit, would end the use of territorial rating for automobile and homeowners insurance policies. Under S.B. 166, those with less risk would pay more for insurance if the rating structure has to be reconfigured, said IIM Executive Director Peter Kuhnmuench. Residents of cities typically pay more for insurance because the frequency and severity of claims -- including theft, burglaries and arson -- is higher in urban areas, he said.

The IIM supports changing the state mandate of "unlimited, lifetime" medical benefits in automobile policies, the setting of medical fee schedules and the creating of an anti-fraud entity as alternate means of cutting insurance costs in the state. "Our association supports proposals that would allow motorists to choose the level of auto insurance medical benefits that best fits their needs," Kuhnmuench said in a statement.

Scott said major insurance reforms are overdue in Michigan. Rates should not be using factors such as ZIP code, education level, or credit score, she said in a statement.

"What I want is simple: I want fair and affordable insurance for every citizen of our state, with rates determined by a person's driving record and the value of their car. That's not so outrageous, is it? But year after year, I introduce bills that languish and then die in committee without getting a hearing," Scott said.

A package of "bad faith" insurance bills cleared the Michigan House of Representatives this summer and await action in the Senate (BestWire, Aug. 20, 2009).

The bills would declare a felony, with a penalty of up to four years in prison and a $50,000 fine, the knowingly fostering or encouraging of wrongful claim denials; punish insurance companies that repeatedly deny consumer claims with penalties including a $1 million fine; create a "whistle-blower protection plan" for insurance employees who report wrongful denials of claims; and requiring insurers to repair a consumer's credit rating when harmed by a wrongful denial of coverage.

Insurers warn the bills' cumulative impact could lead to more than $550 million in premium increases if they become law (BestWire, Aug. 20, 2009).

Scott has called for a rally on behalf of insurance reform at the state capitol in Lansing at noon on Sept. 30.

The top five writers of homeowners multiperil insurance in Michigan in 2008, according to A.M. Best state/line data, were: State Farm Group, with 20.4% market share; Auto-Owners Insurance Group, 14.5%; Auto Club Group, 10.2%; Hanover Insurance Group, 9.3%; and Allstate Insurance Group, 8.0%.

The top five writers of private passenger auto insurance in Michigan in 2008, according to A.M. Best Co. state/line data, were: State Farm Group, with 18.6%; Auto Club Group, with 16.0%; Auto-Owners Insurance Group, with 9.5%; Progressive Insurance Group, with 8.6%; and Hanover Insurance Group Property and Casualty Cos., with 7.8%.