Originally published in Focus: On The Insurance Industry - Winter 2005

On October 10, 2005, Michigan Governor Jennifer Granholm announced a comprehensive insurance reform package purportedly designed to address the rising cost of automobile and homeowners’ insurance in Michigan, including an immediate 20 percent rollback in automobile and homeowners’ rates and the prohibition of credit scoring.

As of going to press, the precise details of the full reform package and the accompanying legislative bills have not been officially introduced. However, the multi-part package is expected to include as many as 20 separate reforms and is touted by Governor Granholm as addressing three primary areas of concern: rates, consumer protection, and industry accountability. As outlined by Governor Granholm, the more notable provisions in each of these three general areas are as follows:

Rates

  • Requiring an immediate 20 percent rollback in automobile and homeowners’ rates
  • Prohibiting insurance companies from using an individual’s credit history or credit score for determining insurance rates
  • Providing stronger tools for the Insurance Commissioner to declare rates excessive and order premium refunds
  • Providing flexibility in setting base rates to provide more affordably priced insurance

Consumer Protection

  • Establishing an Office of Insurance Ratepayer Advocate to purportedly represent and protect the interests of Michigan insurance consumers
  • Prohibiting auto insurers from being able to deny coverage to a driver with no evidence of prior insurance Creating new consumer awareness programs and educational material to help identify actions consumers and community leaders can take to reduce rates
  • Protecting the legal rights of consumers to bring actions against an insurance company for allegedly failing to provide the benefits due

Industry Accountability

  • Requiring a clear, complete, and accurate explanation of all charges on a consumer’s insurance bill
  • Requiring disclosure of producer compensation information to consumers
  • Requiring insurers to send annual reports to the Office of Financial and Insurance Services summarizing certain claims data
  • Increasing civil and criminal penalties for violations of the Insurance Code1

Although formal legislative bills have not yet been released, industry advocates are already lining up against Governor Granholm’s proposed "reforms." Many criticize the initiative as being politically motivated and submitted with an eye on Michigan’s 2006 gubernatorial election. Others think the reform package will be counter-productive and ultimately serve to increase auto and homeowners’ rates for Michigan consumers by creating a less competitive marketplace.2

Foley’s Insurance Industry Team will continue to monitor the progress of Governor Granholm’s proposals and report on material developments as they occur.

Footnotes

1 "Governor Granholm, Democratic Legislators Introduce Comprehensive Insurance Reform," Oct. 10, 2005, Office of the Governor of Michigan (Governor Jennifer M. Granholm) Press Releases, http://www.michigan.gov/gov/0,1607,7-168-23442_21974-127941--M_2005_10,00.html

2 "NAMIC Says Granholm’s Proposal Will Hurt Michigan’s Economy," Oct. 12, 2005, NAMIC Online Press Room - News Releases, http://www.namic.org/newsreleases05/051012nr1.asp; "Dems push insurance rate cuts: Granholm, lawmakers say premiums are excessive, want 20% reduction in homeowner, auto policies," Oct. 10, 2005, The Detroit News Metro/State, http://www.detnews.com/2005/metro/0510/11/B01-343133.htm.

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