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Michigan Auto Insurance Legislation Awaits Senate

The Michigan State House of Representatives has passed a handful of bills aimed at state auto insurance industry reform. The bills await Senate action before they can become law. The House passed the bills in late December after a quick round of debate. There are five bills in all awaiting Senate action. Each of them represents the Democrat-led House's efforts to reform the state's automotive insurance industry. But there are critics of the package of bills, and it remains to be seen how the Senate responds to them under the pressure of at least one group of critics hoping for their defeat.

Michigan House Insurance Bills Overview

The Michigan House bills are numbered H.B. 5631 through H.B. 5635. Each of the five bills passed without much of an effort in the House. H.B. 5631 is a measure to add legally binding procedures to hold at-fault drivers accountable for collision damage caused to another vehicle. H.B. 5632 creates language prohibiting Michigan insurance commissioners from seeking employment from the private insurance industry for a full two years after termination of their current employment. H.B. 5633 prohibits state auto insurance providers from increasing the premium rates of good drivers who are involved in a car accident which was not their fault. H.B. 5634 seeks to bar the use among insurance companies of credit-based insurance scoring, as well as its use of information such as drivers' educational background or their occupations in setting premium rates. H.B. 5635 would bar insurers in the state from selling consumers' personal information without getting prior consent from the consumers [1].

Possible Outcomes of Bills' Passage

H.B. 5631 calling for drivers to be held accountable for collision damage caused to another vehicle is another example of recent nationwide legislative trends toward an emphasis on financial accountability. It will be interesting to see how passage of this particular bill would play out in light of Michigan's existing no-fault auto insurance law. As one of the provisions of Michigan no-fault law, disputes over fault are not to delay payments for costs related to either medical care or repairs of property damage [2]. The property damage portion is especially of interest as it pertains to this new piece of legislation. The financial accountability element laid on the shoulders of the negligent driver cold influence the actions of the insurers themselves in collision situations.

H.B. 5632 appears to be based on an effort to prevent conflicts of interest to those in office as insurance commissioners. Not much in the way of complaints has come from critics of the package of bills. It seems to be an explication of sensible sentiment regarding the interaction of insurance commissioners and the industry. By limiting their opportunities for employment to a period of time removed from their time in office, this bill would seem to greatly limit the temptation to use an insurance commissioner's influence for personal gain.

H.B. 5633 seems to be one in which lawmakers are just trying to proactively correct a possible loophole in the regulations governing the activities of auto insurance companies. There have been cases in Michigan where non-faulted drivers with otherwise good records have been hit with increases in their premiums following accidents. This seems to run contrary to common sense on the surface, but in reality, car insurance providers by and large base their rates on the costs they themselves have to bear in covering their customers. If a driver is involved in an accident costing the insurer thousands of dollars or more, that company has to pay whether the driver is to blame or not. From a business standpoint, it is easy to see why insurers would use the practice of increasing rates on drivers following accidents regardless of fault-especially in a no-fault state. However, from an ethical standpoint the bill makes sense.

H.B. 5634 is the one bill among the group that is receiving the most ire from critics. Again, on the surface, the industry practice of using credit-based scoring to partially determine rates seems unfair and possibly even invasive of drivers' privacy. After all, a low credit score does not necessarily mean anything about your ability to drive an automobile. However, those who have come out against this measure point out that in the state of Michigan, the use of credit scoring is only used to compute eligibility for discounts. It is not currently in use by providers to add surcharges or to determine eligibility for coverage [3].

H.B. 5635 appears to be an easy sell among consumers. One of the most frustrating things any of can go through as consumers is to sign on with a company for some product or service, only to be hit with a barrage of mail or phone calls from other companies to whom that provider sold our information. It is well within reason for auto insurance consumers to seek protection from this practice. Again, at this stage at least, not many public complaints have been heard against this particular bill.

Industry Group Opposes Legislation

But that is not to say there have been no uprisings calling for defeat of this group of bills. A group calling itself "Protecting Michigan's Future" has come out to publicly denounce the legislation, contending that the state House passed the bills without careful consideration. The group, made up of industry leaders, also claims that in spite of their willingness to take part in work to try to come up with ways to address Michigan's auto insurance industry situation, the House acted without consulting them at all. The group has been formed in the wake of House passage of these bills to lobby the Senate to try and secure their defeat.

Protecting Michigan's Future claims the House did not consider potentially negative consequences of the package of bills before it passed them and sent them to the state Senate. They have registered multiple complaints about the proposed legislation. Chief among these complaints appears to be in regards to H.B. 5634, dealing with credit-based insurance scoring. According to the House, this type of scoring is unfair to Michigan consumers. But the Michigan's Future lobby contends that this scoring system benefits the average Michigan driver. They point out, as mentioned earlier, that this scoring is only in use for determination of discount eligibility [3].

The group laments the package of bills as a possible burden on the industry, something that could cause some auto insurance providers to leave the state. The ripple effect of this potential consequence would include a substantial loss of in-state jobs, as well as a significant loss of tax revenue for the state government, which is already experiencing a severe shortage of funds in the midst of a powerful statewide economic downturn.

As the package of bills awaits Michigan Senate action, it will be instructive to keep an eye on the progress of the legislation as the year progresses. With so much at stake for groups on both sides of the issue, the hope is that some sort of compromise or understanding can be reached to help Michigan drivers and limit negative consequences to insurance providers.

[1] http://insurancenewsnet.com/article.aspx?id=148504&type=newswires Retrieved 2010-01-10.
[2] http://www.michigan.gov/documents/cis_ofis_noflt_gd_25094_7.pdf Retrieved 2010-01-10.
[3] http://insurancenewsnet.com/article.aspx?id=148660&type=breakingnews Retrieved 2010-01-10.

 

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