Banking & Finance, Government, and Law

Lawmakers propose additional insurance reform

Senators say amendments would protect consumers from predatory auto insurance rate setting.

September 13, 2019
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A trio of Michigan legislators last week introduced three bills they say would eliminate redlining in the auto insurance system, increase transparency in the premium-setting process and aid consumers in comparison shopping.

Sen. Winnie Brinks, D-Grand Rapids, Sen. Betty Jean Alexander, D-Detroit, and Sen. Jeremy Moss, D-Southfield, announced the bills — which are amendments of Public Act 218, “The insurance code of 1956” — on Sept. 5 and posted them online at legislature.mi.gov on Sept. 10.

Senate Bill 500 is sponsored by Brinks and would create a one-stop online information hub on the Michigan Department of Insurance and Financial Services website at michigan.gov/difs where residents could compare standard auto and home insurance premiums.

It also would require insurers to specify that they will not “refuse to insure, refuse to continue to insure, or limit the amount of coverage available because of the location of the risk,” and that the insurer “recognizes those practices to constitute redlining.”

Insurers that supply false or misleading information would be fined $100,000 under the amendment.

“Just as we are accountable to the people we serve, residents deserve an auto insurance system that gives them the ability to understand what they are paying for, get the coverage they need when they need it and have the ability to choose an option that works for them,” Brinks said in a statement. “This legislation will give Michiganders insurance options and information to help them get the right coverage at the best price.”

SB 499, introduced by Alexander, would implement “a lasting ban” on redlining in Michigan, according to the senators. Public Act 21 of 2019, which took effect June 11, prohibits the use of ZIP codes in rate-setting, but the new law still allows insurance companies to consider “territories” — which could continue to allow unfair rates based on a person’s address. SB 499 would prohibit insurers from grouping auto risks by territory.

“People in Detroit and surrounding areas are already paying far too much for auto insurance because these companies are permitted to discriminate based on nondriving related factors,” Alexander said in a statement. “It’s unfair and unreasonable for companies to target communities of color and charge them inflated premiums simply because of where a person (lives).”

SB 498, sponsored by Moss, would ban the practice of price optimization — a method by which auto insurance companies set rates or award discounts based on what they believe the consumer will tolerate paying. The practice often penalizes loyal customers who are unlikely to shop around and leave their current policy and rewards those they believe will leave their plan, according to Moss.

“Price optimization is a billing scam that uses nondriving factors to set rates — and actually keeps loyal policyholders trapped with high insurance costs. Michigan must join the roughly 20 other states that outlaw this shady business practice,” he said in a statement.

“These bills will tackle some of the shortcomings of the insurance reform signed into law earlier this year that neglected to hold insurance companies accountable. Michigan consumers deserve more transparency about how their rates are set.”

Mike Brouwers, who is immediate past president of the West Michigan Association of Insurance Agents and a member of the board of directors of the Michigan Association of Insurance Agents, said the associations are not yet ready to issue an official opinion on any of the proposed bills, as they are still in the early stages of the legislative process.

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