Insurance News

Insurance firms deserve fair and reasonable treatment from state regulators

Posted on: May 14, 2009

True to her word, Gov. Jennifer Granholm is cracking down on Michigan insurance companies that didn’t go along with her call for a year-long rate freeze. Proposed rate hikes sought by noncomplying insurers — most of the firms writing auto insurance policies here — have been fly-specked as never before.

This pressure from the Office of Financial and Insurance Regulation is ill-conceived and certain to further alienate one of the few Michigan industries holding its own as others shed thousands of jobs.

Most insurers have to adjust their rates this year — to deal with a recently announced increase of more than $20 per customer in their assessment from the Michigan Catastrophic Claims Association, if for no other reason. Insurers have to pay into this state law-mandated risk pool, which covers medical care for people with severe injuries and profound disabilities resulting from vehicle crashes.

When they submit proposals to the insurance regulators, industry representatives say, they’re ordered to provide a detailed justification for what previously had been routine — such as good-student discounts or the methodology used to base higher rates for a Mercedes on the likelihood repairs will costs more than those for a Chevy.

Granholm has directed the insurance commissioner to “utilize every administrative tool” to scrutinize rate requests from companies that didn’t freeze rates. The review should continue until “the proposed rate has been thoroughly and carefully evaluated and the company has clearly demonstrated that the proposed rate meets all applicable statutory and constitutional requirements,” according to her official directive.

A key target of the nit-picking is credit scoring — the practice of factoring customers’ good or bad credit history into the auto insurance premiums they have to pay. Used here and in 46 other states, it’s the crux of this whole controversy.

Granholm and many House Democrats want to ban it, arguing that not paying your bills on time has nothing to do with your driving skills. Industry experts insist there’s a provable correlation between the way someone handles money and the likelihood he or she will end up turning in insurance claims for vehicle repairs.

Unable to get lawmakers to ban the practice in the past, the governor and insurance commissioner sought in 2004 to outlaw it through administrative rule-making. The result was a legal battle that has ended up in the Michigan Supreme Court.

Granholm now wants an industrywide rate freeze so a new Legislature — with a strong Democratic House majority — has time to pass recommendations from her insurance consumer advocate, Butch Hollowell. Not surprisingly, they include a proposed ban on credit scoring.

What we know so far is that the Federal Trade Commission and former state insurance commissioner Frank Fitzgerald have determined insurers are right — there’s a strong relationship between people’s financial habits and the risk of insurance claims.

So let’s stop picking on this industry. Let the Supreme Court and lawmakers sort out the credit scoring issue. Harassing insurers can only increase the chances they and their jobs will leave for states with less onerous regulation.

© Copyright 2008 The Detroit News. All rights reserved.

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