Heartland Commentary on Michigan’s Auto Insurance Reform Proposals

Published December 21, 2009

FAIR Legislation Not Fair at All

Recent efforts by Michigan legislators to bring down auto insurance prices could have strong negative effects on policyholders statewide. Karen Bouffard, in her story “State House OKs bills revamping car insurance,” neglects to discuss many of the critical flaws in the new legislation. The package of bills being proposed, which passed the Michigan House November 16, will subsidize auto insurance in Detroit and appears likely to raise rates everywhere else.

The current system, despite claims to the contrary by supporters of the new legislation, does not lead to excessive profits for auto insurers in many Michigan markets. In fact, Wayne State University has found that the current system doesn’t produce large profits even in the City of Detroit.

If Detroit wants a better auto insurance system and lower rates, it should ask the legislature to investigate ways to provide low-cost “dollar a day” policies like those that exist in New Jersey or, better yet, simply make auto insurance optional at least for those who have health coverage. In any case, the current legislation is a bad idea.

Increased Regulation Not Always the Answer

The Michigan House of Representatives recently passed a package of seriously flawed reforms to the state’s auto insurance system. In your story covering the bills’ passage, “Mich. House approves auto insurance bill,” the author neglects to discuss many of the critical flaws in the new legislation.

The bills, known as FAIR would essentially eliminate insurers’ ability to react to risks and write sound auto policies. Accurate rates ensure that one consumer does not end up subsidizing another’s risky behavior. By making it impossible to use dozens of important risk factors—including credit scores and, for the most part, location—the bills would make auto insurance rates less fair for everyone in the state.

Matthew Glans ([email protected]) is a legislative specialist for The Heartland Institute.