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Like drivers in most states, those in Michigan get tired of the constant rate increases, whether they have been in a car accident or not. Auto insurance rates have risen 69% since 1991, and drivers aren’t taking it anymore.
The Fair and Affordable Insurance Reform initiative, or FAIR, was introduced last year in Michigan, and lawmakers are currently trying to work out the details. In a nutshell, the state, rather than insurance companies, would be able to set the price for auto insurance.
Under this initiative, car insurance companies would have to file a request to increase rates with the state’s insurance commissioner. He can either approve or deny the increase. If the automobile insurance company charged a policyholder more than the commissioner approved, the company will have to reimburse the driver the difference plus interest.
Rates in Michigan have skyrocketed over the years, resulting in a third of drivers going without car insurance, simply because they cannot afford it. The FAIR initiative was launched in the hopes of reducing that number substantially, keeping Michigan drivers safer, and protecting them should they be in an accident.
The Whole Package
The FAIR initiative includes 10 bills, half of which have been passed in Michigan’s House. Many of the bills address Michigan’s no-fault car insurance law, which forces all drivers in an accident to pay a deductible, regardless of who caused the accident. Car insurance premiums often rise after this. There are 12 states currently with no fault laws.
Another part of the initiative is working to eliminate the use of credit scores in determining car insurance rates. Auto insurance providers have long used financial records as a means of determining the amount of risk a driver has of filing a claim, but many feel this is discriminatory against drivers with bad credit, especially in this financial climate.
The bills that have already been passed will:
• Not permit insurers to use credit history, employment or education level as a basis for rates
• Remove the dollar cap currently in place for suing for damage caused to cars in accidents
• Keep a commissioner from being tied to a commercial insurance company for 2 years after leaving office
• Keep insurers from charging more for a person not found at fault in an accident
• Make insurers get written permission before disclosing personal financial info
Opposition
Insurance companies, naturally, are opposed to the bills that are on the table. They feel that they operate in a free market and deserve to set their own rates. If the initiative is passed, many insurance professionals worry that it would reduce competition among car insurance providers and cause many to shut down. Price is important in competing with other insurers, so without the ability to develop their own rates, insurers might find themselves out of business.
Using credit scoring to determine rates is just one method of analyzing risk, and they agree that there should be a cohesive system nationwide. Studies show that the lower the credit score, the higher the risk of a claim among drivers, and insurers do what they can to minimize the amount of risk they take on with a policyholder by charging more for high risk drivers’ policies.
