Michigan’s FAIR Legislation Is Fundamentally Flawed

Published December 14, 2009

A legislative initiative called Fair, Affordable Insurance Rates (FAIR) is poised to begin gathering signatures throughout Michigan.

Eli Lehrer, a senior fellow of The Heartland Institute and director of its Center on Risk, Regulation, and Markets, has written a brief Web Memo aimed at educating citizens and policymakers about the nature of Michigan’s auto insurance system and the likely consequences of the initiative.

The article provides a short introduction to the way auto insurance works in Michigan, and it outlines the initiative’s key provisions. After the introduction, one section of the paper is devoted to each of the following five points:

1. Auto insurance in Michigan is required by the state to provide more benefits than auto insurance anywhere else in the country. These greater benefits explain why premiums are higher in Michigan than elsewhere.

2. Michigan auto insurance premiums are generally not excessive.

3. The across-the-board premium cuts promised under the FAIR proposal will not come to pass.

4. In the medium term, it’s likely that auto insurance rates will go down in the city of Detroit proper and up almost everywhere else in the state if the FAIR initiative becomes law.

5. The FAIR initiative will impose massive new administrative overhead costs that insurance consumers ultimately will have to pay.