Democrat Lawmakers Bat for Insurance Premium Regulations


House Democrats are pushing for more regulations regarding car insurance premium hikes in Michigan. If things go their way, Michigan auto insurance companies would have to get endorsements first from the state insurance commissioner before they could implement premium rate increases.  Another provision in the proposed bill is that premium rates will be computed solely on an applicant’s driving records and nothing else.

Democrat Lawmakers Bat for Insurance Premium RegulationsMichigan motorists are required by law to have auto insurance.  On the other hand, auto insurance companies are given a free hand to dictate premium rates.  Hence, it is not surprising to know that Michigan has the second highest average premium in the US, bested only by New Jersey.

However, statistics do not add up, since safety records of Michigan drivers are comparatively better than national averages.  Michigan also has the highest seatbelt usage in the country.  State also records low vehicle accident related fatalities and auto theft rates.

Democrats are expecting tough opposition from Republican lawmakers who believe that this recent proposal of their House rivals is counterproductive and would lead to business failures.  They point that the state’s auto insurance industry employs thousands of people and that imposing coverage regulatory policies could cause job losses and/or capital flight.

Democrats are also criticizing standards that auto insurance companies adhere to when computing for premium rates.  They said that it was biased to a person’s educational achievement and occupation regardless of one’s driving records.  For example, a Michigan factory worker is expected to pay 2.5 times more than a medical doctor who drives the same type of car and has an identical driving record.

Insurers, lawmakers added, are also heavily reliant on one’s credit rating.  For example, a policyholder who has been convicted of drunk driving, but has a good credit rating is expected to pay lower premiums compared to a motorist who has good driving records.

Opponents to this legislative proposal, however, see the Democrats’ latest manoeuvre as a political stunt, intended to help them gain more supporters ahead of the 2010 elections.  The Michigan Insurance Coalition lashed out at lawmakers saying that insurance companies have been the favourite and preferred “punching bag” of Democrats.

They explained that industry regulation would not amount to cost savings, but on the contrary, would lead to increased cost of business.  In economic principles, the only efficient way to lower prices is to lower costs.  In the model proposed by Democrats, rates will be artificially suppressed, which could result to losses.  In this scenario long term, businesses would be forced to cut back jobs or move their operations elsewhere to arrest the revenue decline.