Mackinac Center for Public Policy (MCPP) researchers are not convinced that limiting factors insurers can use in determining what insurance rates to charge individual drivers will produce the kinds of savings many are hoping for.
“Restricting what factors insurers may use to set these rates will not reduce insurers’ overall exposure to future losses in any way,” researchers said in a blog posted to the organization’s website. “As a result, insurers will be forced to charge higher premiums to drivers who would have otherwise been determined to be less expensive to cover and lower premiums to drivers who would have otherwise been determined to be more expensive. In the end, it’s a zero-sum game and will lead to a massive increase in what is known as 'cross subsidization:' some consumers pay more so that other consumers can pay less.”
Michigan Gov. Gretchen Whitmer has led the charge among Democrats in demanding that any auto insurance reform bill prohibit insurers from using “non-driving” factors when setting rates, an exercise that Mackinac Center sees as wasted energy.
Michigan Gov. Gretchen Whitmer | Michigan.gov
“Limiting what factors insurers can use to assess the risk of selling someone an insurance policy will not produce overall savings in the auto insurance market like other elements of the reforms will,” researchers said in the blog. “In fact, limiting the use of certain factors may even lead to higher overall costs in the system. Auto insurance is a very competitive market, and one of the most basic ways insurers compete on price is by being as accurate as possible at estimating what their future losses will be and pricing their premiums as low as possible. Insurers who are the most successful at this will be able to operate on thinner margins than others and will beat them in the marketplace by offering the most affordable rates.”
Mackinac Center reasons that to devalue such prized research is to ultimately limit the range of choices one has by running some insurers out of business and making the overall marketplace a less competitive one.
“The potential ramifications of limiting these rating factors may be a leading reason why most states allow auto insurers to use a variety of factors in setting rates,” researchers said.
Only eight states currently limit the range of factors insurers can use, according to the American Property Casualty Insurance Association.
“All the rest allow insurers to use age, credit score, education level, occupation, gender, marital status, ZIP codes and more as rating factors,” MCPP researchers said. “If these were to be deemed 'non-driving factors' under the proposed reforms being considered in Lansing, Michigan would stand alone for being the most restrictive state in the nation when it comes to rating factors.”