OPINION: There’s one big problem with Michigan’s no-fault auto insurance reform
Michiganders pay the highest auto insurance rates in the nation; Detroiters pay the highest rates in
Here's the problem: No-fault reform has been sold as the key to bringing down Michiganders' insurance costs. But under
That's risky, because there's nothing in
Changes to
How? Data. And transparency.
Insurance industry representatives concede that no-fault reform isn't guaranteed to cut costs, noting that increases to other portions of a customer's bill could offset savings generated by no-fault reform. Most recently, the
No-fault is just one portion of any driver's insurance premium, and insurers use a multitude of factors to set rates, including the number of miles driven per day, a driver's safety record, and the safety features or value of the car itself. Insurers also use non-driving factors to set rates, like gender, marital status, credit history, or home address, claiming that information correlates to risk.
Here's where it gets tricky. The risk insurers are talking about isn't risky driving; it's the risk they'll have to pay an auto insurance claim. Because folks living in poverty are more likely to have bad credit (or no credit), basing insurance rates on credit history means folks with the least financial security pay higher rates.
And Insurers can still use geography to set rates as long as they can demonstrate a connection between location and risk.
State insurance regulators can reject an insurer's proposed rate, but only if it violates criteria established under the new law.
A lack of regulatory rigor could "lead to changing what used to be kind of a rough knife around certain neighborhoods to isolating certain characteristics with a surgical scalpel," he warns.
Rivera says the insurance market is lopsided because it's difficult for customers to find out how rates are set, or how exactly insurers factor credit history or geographic location into rates. So making the reform law work for everyone will require the state to demand more data, and more transparency, than insurers have provided in the past.
"What gets measured gets managed," Rivera says. If the state prioritizes accountability, tracking data to ensure that rates actually go down, for everyone, no-fault reform could be a an important step forward.
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