The insurance industry is not taking the recent attacks by Michigan Gov. Jennifer Granholm and the state consumer advocate lightly.
Insurance trade groups have come out swinging against Granholm’s call for a freeze on auto insurance rates until lawmakers can enact some of the 10 reforms contained in a report by the state’s insurance consumer advocate, Melvin Butch Hollowell.
The trade groups have also taken swipes at Hollowell’s report that calls for requiring prior approval of rates, banning the use of credit scoring and imposing other restrictions on carriers.
Erin Collins, state affairs manager for the National Association of Mutual Insurance Companies, called the assertions made in the report “highly questionable” and unscientific.
“There are multiple assertions in the report relating to affordability, underwriting, and profitability that are not substantiated by scientific data and in most cases give only a portioned view of the insurance market in Michigan,” she said.
Hollowell’s report claims statistics used by the industry are inherently tainted and contrived.
The NAMIC representative cautioned the Legislature and governor to tread carefully regarding Hollowell’s recommendations.
“Michigan has more than 55,000 jobs invested in the insurance industry. In such a tenuous economic time, the governor’s recommendations would make Michigan one of the most arduous and least attractive insurance markets in the country and could threaten the future existence of insurance jobs,” she said.
NAMIC said these officials criticize the industry for growth of premium during the last 20 years without considering the rise in costs of vehicles, accidents and other factors insurance premiums must pay for.
According to NAMIC, in 1989, the average price of a car was $15,350 while in 2008 it was $28,715 – an increase of 87 percent. Milk was $2.62 per gallon in 1989 and today is $3.38 – a 29 percent increase.
“Does the governor want to freeze these prices, too? ” asked Collins.
Collins disputed numbers that the average auto insurance premium increase in Michigan has been 3.45 percent per year since 1989 but suggested that even if true, the hike is “hardly staggering.”
Collins said a National Association of Insurance Commissioner’s report found that for the two-year period of 2004-2006, the Michigan average premium declined 6 percent.
She said Granholm “erroneously placed too much faith in an opinion report that will negatively impact both her citizens and the vital employment that insurers bring to Michigan during this economic crisis.”
David Snyder, vice president and assistant general counsel for the American Insurance Association, also rejected the report and the governor’s call for a rate freeze
“The advocate’s report ignores the very high costs inherent in Michigan’s no-fault auto insurance system and makes regressive policy recommendations that could harm an otherwise stable, competitive market,” Snyder said. “Unless the governor can freeze medical, litigation, motor vehicle crash and other costs, this is simply anti-competitive, anti-business and anti-consumer grandstanding. It’s time to move beyond politically charged arguments against an industry that provides financial security and good jobs to thousands of area residents and examine legitimate solutions to create a more efficient, less costly system.”
Snyder said rising medical costs are partly to blame for any increase in insurance premiums.
“In 2007, the average PIP claim in Michigan had increased more than 290 percent since the mid-1990’s to $29,392 compared to $8,458 in all other no-fault states. This is an unsustainable trend resulting from fast rising medical costs – a major component of PIP benefits, possible fraudulent claims padding and a lack of benefit level choices. Yet, despite these strains, the average price of auto insurance in Michigan is relatively affordable – 13th nationally – and reflects significant competition among insurers,” said Snyder.
Snyder also dismissed the call for prior approval of pricing.
“Counter to what the advocate claims, making onerous changes to the state’s well functioning rating law that creates a more restrictive business environment will not serve consumers as well as promoting competition and providing fair, balanced regulation. Nor does it help to have the governor use the Office of Financial and Insurance Regulation as a political tool instead of allowing the commissioner to be an objective regulator,” said Snyder.
Joining NAMIC and AIA in attacking the report and Granholm’s proposals was the Property Casualty Insurers Association of America.
“Granholm says her motto is that she will go anywhere and do anything to bring jobs to Michigan. But her attack on insurers conflicts with that motto,” said Ann Weber, PCI regional manager and counsel.
Weber said property/casualty insurers support the state’s economy by paying more than $220 million in state premium taxes and employing thousands in good-paying jobs.
According to Weber, Michigan’s premiums reflect the fact that the state’s auto insurance law offers some of the most generous benefits in the nation. It is the only state that offers unlimited first-party medical benefits to claimants, she said.
“Given the fact that health care benefits have no limit in Michigan, it should not be surprising that Michigan’s average liability premium is higher than in other no-fault states that do not offer unlimited medical coverage. Despite this comparatively higher price, however, the average amount for liability and no-fault insurance in Michigan is only one percent higher than the national average and falls in the middle third of the nation,” Weber said.
In addition, while Michigan has the second highest collision insurance premium in the nation, this is due in part to the state’s broadened collision coverage, which pays for damage to one’s car regardless of fault. The collision loss per insured vehicle in Michigan is highest in the nation, which explains the higher-than average collision premium, according to Weber.
“The reality is that medical and repair costs continue to increase, and auto insurers need the ability to assess and adjust rates so they have the reserves available to pay policyholders when they have a claim,” said Weber. “The insurance industry is financially strong and able to pay claims, in part because of appropriate rate setting.”