Heightened competition among Michigan auto insurance providers in the United States is hurting, as revealed by a new report.
Fitch Ratings Inc., a Nationally Recognized Statistical Rating Organizations (NRSRO), reported that car insurers are entering tougher days despite their strong operating performance since 2003.
Increased competition meant lower premium rates for American motorists since insurers have to outdo each other in terms of the policies they offer, both in cost and coverage. However, competing with each other comes with a great cost for auto insurers.
Fitch said it gradually deteriorates income for companies which they need to continue operation. If current trends do not stop, carriers are likely to lose more as the year ends. Fitch added that this is not a good sign since it will hurt the rating of insurers, which would only lead to a greater cycle of debt.
The rating organization explained that providers need excellent ratings from NRSROs to borrow at lower interest rates. Moreover, good ratings are signs of stability which insurers need to attract clients.
Meanwhile in Michigan, it is not only completion that is hurting auto insurance carriers. Over recent weeks, political leaders have also vented their anger on providers because of high premium costs in the state.
Earlier this month, Sen. Martha Scott held a rally at the capital in Lansing to encourage motorists all over Michigan to pay higher rates so Detroit’s premium rates would go down. Motor City residents are paying the highest premium rates in American this far at an average of $5,100.
The state’s House of Representatives is currently debating drastic measures to push car insurance rates down. If proposals become law, federal regulators can already mandate providers to cut premium rates down. Some representatives also propose to require motorists all over Michigan to provide subsidies for policyholders in Detroit to help Motown residents pay for their premium rates.
However, finance analysts fear the worse for the whole of Michigan. They said proposed changes could only drive insurers away from the state, making it impossible for motorists to pay for insurance at any cost.
Specialists recalled how New Jersey and Massachusetts experimented with similar laws back in 1970s and 1990s. Federal intervention did cut costs down, but it did drive away majority of insurers for both states. In Massachusetts, nearly all nationally recognized insurers stopped providing coverage to local motorists.
Experts cite high level of claims among Michigan motorists and uncapped medical benefits to those hurt in accidents as primary reasons for the state’s high premium rates. They explained excessive auto insurance costs are inevitable and lowering minimum requirements is the only solution they can see so far.