Mich. Gov Calls For Auto Rate Freeze, Insurers Object

Michigan Governor Jennifer Granholm has called for a 12-month auto insurance rate freeze, based on information contained in a new report that cites high rates in the state despite fewer accidents.

Insurance associations criticized the rate freeze proposal and charged that the report, prepared by Michigan Insurance Consumer Advocate Butch Hollowell, is incomplete and misleading.

Tuesday in her State of the State Address, Gov. Granholm said, "I call upon every auto insurance company to freeze rate increases for 12 months while the legislature works to enact comprehensive insurance reform."

As justification, Gov. Granholm cited a report by Mr. Hollowell released yesterday, which begins, "At a time when our economy has stretched consumers' pocketbooks to the limit, the people of Michigan are paying among the highest auto insurance rates in America; rates for coverage that they are compelled, by law, to buy."

The report goes on to state that auto rates in Michigan are second-highest in the nation, increasing "at a staggering rate of 69 percent" since 1989 - the fastest rate of increase in the nation.

The rate of increase comes as auto accidents in the state are down by 54 percent over the past 10 years, according to the report.

It makes 10 recommendations for auto insurance reform, including setting a definition for premium affordability to ensure reasonable rates, and a change to a prior approval system from the current file and use system.

Insurance associations took issue with both Gov. Granholm's rate-freeze call and Mr. Hollowell's report.

David Snyder, vice president and assistant general counsel of the American Insurance Association said of the rate freeze, "Unless the governor can freeze medical, litigation, motor vehicle crash and other costs, this is simply anti-competitive, anti-business and anti-consumer grandstanding."

He said instead of "politically charged arguments" legitimate solutions should be looked at "to create a more efficient, less costly system."

"The advocate's report," he said, "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."

Erin Collins, state affairs manager for the National Association of Mutual Insurance Companies (NAMIC), said, assertions in the report relating to affordability, underwriting, and profitability "are not substantiated by scientific data..."

"Both Granholm and Hollowell criticize the industry for growth of premium during the last 20 years. 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?

"Of course, insurance is going to cost more. By the governor's own numbers, the average increase is 3.45 percent per year since 1989 - hardly staggering. In fact, in direct conflict with the governor's and Hollowell's assertions is a National Association of Insurance Commissioner's report finding that for the two-year period of 2004-2006, Michigan average premiums declined 6 percent."