Michigan’s Office of Financial and Insurance Regulation (OFIR) Commissioner Ken Ross recently issued an order disapproving a rate filing for Michigan Basic Property and Insurance Association (Michigan Basic), the insurer of last resort for homeowners’ insurance in Michigan. If approved, the rate filing would have raised Michigan Basic’s insurance rates by 18.9 percent.
State law provides that Michigan Basic’s rates for home insurance must be equal to the weighted average of the ten voluntary market insurer groups with the largest premium volume in this state. Michigan Basic has traditionally averaged the base rates of the top ten insurer groups. However, according to the order issued by Commissioner Ross, rates calculated in this manner are no longer appropriate or lawful.
New rating factors, especially the use of insurance credit scoring, have greatly influenced the calculation of premiums, according to the Michigan’s OFIR order. Base rates have been driven up so that insurers may deeply discount the rates of persons with high insurance credit scores. Base rates, which once had some correlation with expected losses, have now become just a starting point in a methodology that arrives at expected losses, according to the Michigan OFIR’s release.
“Michigan Basic’s rate setting process was broken, and this order fixes it. As the insurer of last resort for Michigan homeowners, their rates must be fair, reasonable, equitable, and nondiscriminatory,” said Ross. “The rate-setting method they were using unnecessarily increased rates in a way not required by Michigan law.”
Ross ordered Michigan Basic to calculate their home insurance rates based upon average premium charged by the top ten insurer groups and not the base rates of the top top insurer groups.
To view the Commissioner’s order, visit: http://www.michigan.gov/documents/dleg/MBPIA_Order_05-11-08_234183_7.pdf
Was this article valuable?
Here are more articles you may enjoy.