Filed Under:Markets, Regulation/Legislation

Proposed Michigan Insurance Ballot Proposition Stirs Conflict

NU Online News Service, Dec. 2, 3:28 p.m. EST

An effort to put a proposition on the Michigan ballot to change auto insurance regulation is drawing radically different reactions from interest groups.

At issue is the proposed Fair Affordable Insurance Rates (FAIR) initiative to cut insurance rates by 20 percent and establish an aggressive review process for insurance company rates and pricing practices.

The concept drew strong support yesterday from the Consumer Watchdog and the Consumer Federation of America (CFA) groups as a boon to consumers that would lower rates. They issued their statement after a totally opposite view was announced Nov. 22 by the conservative Heartland Institute, which said the initiative would raise rates and destroy jobs.

Before the question can get on the November 2010 ballot its supporters will need to secure 305,000 signatures by May 26, according to the office of State Sen. Hansen Clarke, D-Detroit, who is a prime mover of the effort.

The format and language of the question has received approval from the Board of Canvassers, but Mr. Clarke's staff would not immediately provide its text today and said in response to questions about the initiative that no comment on the issue was being made until "everything is set."

Later in the evening Clarke's staff member Laurel Makries provided a copy of the filing with the Board of Canvassers with a flier to accompany petitions to put the measure on the ballot that reads in part "Hansen Clarke Working for You Petition to put the Fair & Affordable Insurance Act on the Nov. 2, 2010 Ballot.

Lack of detail about the petition effort has led the Heartland Institute's Eli Lehrer to describe FAIR as a "shadowy group."

The consumer organizations said the ballot measure's proposed reforms are modeled after California's Proposition 103, which was approved in 1988 and has "saved California drivers an average of $3 billion per year" by "creating an auto insurance market that is competitive, has low rates and protects consumers from abusive insurer practices."

It would, they said, prohibit "price gouging that forces Michigan drivers to pay about 12 percent more than the national average for auto insurance" and "require insurers to base rates primarily on a motorist's driving record rather than factors like their ZIP code or marital status, which currently dominate the pricing structure of many insurers."

But, according to Heartland, courts supported large insurers' arguments that rate cuts would bankrupt them and "many Californians saw their auto rates remain the same."

Heartland said the ballot initiative effort to limit use of credit history and location to set auto rates would make it difficult for insurers to offer discounts to the drivers who are the best risks.

The rule changes would be a refiguring designed to benefit Detroit drivers at the expense of those living elsewhere in Michigan, according to Heartland, which forecasted that "even if premiums fell in the short term--and they probably won't--motorists throughout Michigan would quickly see all sorts of discounts vanish and end up paying more for auto insurance.

Local insurers would go out of business or sell out to larger firms, and insurance jobs would vanish, said Heartland.

J. Robert Hunter, CFA insurance director, said the California proposition "led to a price drop in auto insurance relative to the national average, from 36 percent above the national average when the law was adopted to a mere 2 percent higher today."

Douglas Heller, executive director of Consumer Watchdog, a consumer advocacy organization with offices in California and Washington D.C., said, "Before an insurance company sells a homeowners, auto, business or just about any policy in California, the insurer has to be able to prove in a public hearing that its rates are actuarially justified and not excessive. This has made the California market extremely competitive and has kept rates from growing for two decades while premiums skyrocketed everywhere else."

He said California is the fourth most competitive insurance market in the country.

Meanwhile, with the possible insurance ballot question in the wings, Michigan House and Senate Democrats and the state Automobile and Home Insurance Consumer Advocate Melvin Butch Hollowell, announced they would push "a package of insurance reform bills to make auto insurance rates more affordable and insurance companies more accountable."

They said the package is called the "Fair and Affordable Insurance Reform" or FAIR initiative and would include a ban on "unfair credit scoring," offer a low cost policy for working poor with good driving records, and require insurers to get prior approval before any new rate hikes.

A spokesperson for Mr. Hollowell, Kathleen Fagan, said she thought a ballot initiative might be a possibility if there was no legislation, but she was not fully briefed on how the initiative approved by the Board of Canvassers dovetailed with the bill package.

Mr. Hollowell denied any knowledge of the ballot initiative even though the name is similar to the bill package. "We're focusing on our bills," he said adding that he thought they were making progress with both Republican and Democratic legislators.

He said he had spoken to Sen. Clarke, about the ballot initiative, but what the lawmaker said about it "doesn't come to an admission it's his initiative."

During her 2009 State of the State address, Gov. Jennifer M. Granholm called on the state legislature to adopt comprehensive auto insurance reform this year.

Mr. Hollowell said in a statement that even as accidents in Michigan have been reduced the insurance industry has "raised rates 69 percent since 1991 while enjoying virtually no regulation for 30 years."

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