LANSING – House Democrats today unveiled consumer protection legislation to combat excessive insurance rates; eliminate credit scoring, the unfair practice of basing a person's auto insurance rate on their credit rating; and open the Michigan Catastrophic Claims Association (MCCA) to public scrutiny.
Under current Michigan law, citizens have no recourse against abusive insurance companies that charge them excessive rates under the state insurance code. In fact, not even the Commissioner of the state Office of Financial and Insurance Services (OFIS) can order a refund of excessive rates.
"It's outrageous that consumers who have been overcharged by their insurance companies have no clear right to a refund," said State Representative Marc Corriveau (D-Northville). "We need to rewrite the insurance code so it protects the consumers it was originally designed to assist – not wealthy insurance companies."
House Democrats introduced a package of bills that will:
- Give OFIS the authority to order refunds when customers are overcharged. (Currently, the Commissioner has no authority to require an insurance company to issue a refund when there is a determination of excessive rates.)
- Provide Michigan citizens the ability to take insurance companies to court for various violations of the insurance code. This bill will allow residents to take matters into their own hands if insurers overcharge them and the state refuses to act.
- Eliminate the use of credit scoring in setting auto insurance rates.
- Require the Michigan Catastrophic Claims Association (MCCA), an independent insurance fund that pays for the care of severely injured motorists, to comply with the Open Meetings Act, add public members to the board and open its records to annual audits.
- Eliminate the practice of using a time gap in coverage as a reason for denying someone auto insurance.
- Change the definition of "excessive rates" so that violations are based solely on the costs of providing insurance.
"Your insurance rates should be determined by your driving record – period," said State Representative Virgil Smith (D-Detroit), who chairs the Insurance Committee. "Credit scoring is unfair to Michigan consumers, especially when too many of our working families are already struggling to make ends meet. During these difficult economic times, this legislation will protect people whose financial situations change, but whose responsible driving habits remain the same."
The MCCA, which requires all auto insurance companies in Michigan to pay a certain amount into the fund, raised its annual rates imposed on all drivers from $14.41 in 2001 to $123 in 2007. Those charges are in turn passed on to consumers.
"The MCCA works behind closed doors when it sets its rates, and it also refuses to open itself up to public scrutiny," said State Representative Robert Dean (D-Grand Rapids). "Our package brings much-needed transparency and accountability to the auto insurance industry."
Michigan's average auto insurance rate remains one of the highest in the Midwest. Though the insurance industry receives several tax breaks, insurance rates continue to climb dramatically. Since 1999, auto insurance rates increased between 45 and 90 percent, according to OFIS.