SENATE BILL No. 1340

 

 

May 19, 2010, Introduced by Senators CLARKE, THOMAS, PRUSI, CLARK-COLEMAN, BRATER, SWITALSKI, OLSHOVE, CHERRY, HUNTER and SCOTT and referred to the Committee on Economic Development and Regulatory Reform.

 

 

 

     A bill to amend 1956 PA 218, entitled

 

"The insurance code of 1956,"

 

(MCL 500.100 to 500.8302) by adding chapter 19A; and to repeal acts

 

and parts of acts.

 

THE PEOPLE OF THE STATE OF MICHIGAN ENACT:

 

                             CHAPTER 19A

 

                THE FAIR AND AFFORDABLE INSURANCE ACT

 

     Sec. 1957. (1) The purpose of this chapter is to protect

 

consumers from unfair insurance rates and practices, to encourage a

 

competitive insurance marketplace, to empower consumers with legal

 

rights, and to ensure that insurance is affordable for all

 

residents in this state.

 

     (2) This chapter shall be known and may be cited as the "fair

 

and affordable insurance act".

 


     Sec. 1958. (1) For any coverage for a policy for automobile

 

and any other form of insurance subject to this act issued or

 

renewed on or after the effective date of this chapter, the

 

following apply:

 

     (a) Every insurer shall reduce each policyholder's premiums to

 

levels that are at least 20% less than the premiums for the same

 

coverage that were in effect on February 21, 2009.

 

     (b) The premiums reduced in this section shall not be

 

increased for a period of 1 year from the date of issuance or

 

renewal of the policy.

 

     (c) An insurer shall provide a good driver discount to a

 

person who meets the good driver standards described in section

 

1959.

 

     (2) Commencing 11 months after the effective date of this

 

chapter, insurance rates and rating factors subject to this chapter

 

must be approved by the commissioner prior to their use.

 

     (3) For those persons who apply for an insurance policy for

 

the first time on or after the effective date of this chapter, the

 

premium shall be 20% less than the premium that was in effect on

 

February 21, 2009 for similarly situated risks. Any separate

 

affiliate of an insurer, established on or after February 21, 2009,

 

shall be subject to the provisions of this section and shall reduce

 

its premiums to levels which are at least 20% less than the

 

insurer's charges in effect on that date.

 

     Sec. 1959. (1) In addition to the reduction due to the premium

 

rollback under section 1958(1), an insurer shall provide a good

 

driver discount regarding automobile coverage to an eligible person

 


who meets the standards described in this section. The good driver

 

discount shall provide a discount of at least 20% below the premium

 

the insured would otherwise have been charged for the same

 

coverage. For policies renewed or issued within 1 year after the

 

effective date of this chapter, the good driver discount shall

 

provide a discount of at least 20% below the premium the insured

 

would otherwise have been charged for the same coverage that was in

 

effect on February 21, 2009. The premium reduction from the good

 

driver discount is in addition to the premium reduction due to the

 

premium rollback under section 1958(1). The commissioner shall

 

approve the good driver discount. Every person who has been

 

licensed to drive a motor vehicle for the previous 3 years and,

 

during that period, has not been assessed any points as provided in

 

section 320a of the Michigan vehicle code, 1949 PA 300, MCL

 

257.320a, shall be qualified to purchase a good driver discount

 

policy from the insurer of his or her choice. An insurer shall not

 

refuse to offer or sell, or both, the good driver discount policy

 

to any person who meets the standards of this subsection. A person

 

who presents evidence of having an operator's license in another

 

state or Canada and has the equivalent of zero points on his or her

 

driving record is rebuttably presumed to meet the criteria of this

 

subsection.

 

     (2) An agent or representative representing 1 or more insurers

 

having common ownership or operating in Michigan under common

 

management or control shall offer, and the insurer shall sell, a

 

good driver discount policy to a good driver from the insurer

 

within that common ownership, management, or control group, which

 


offers the lowest rates for that coverage. The requirement of this

 

subsection applies notwithstanding the underwriting systems of any

 

of the insurers or the underwriting systems of the common

 

ownership, management, or control group.

 

     Sec. 1960. (1) The business of insurance shall be subject to

 

the laws of Michigan applicable to any other business, including,

 

but not limited to, the Michigan consumer protection act, 1976 PA

 

331, MCL 445.901 to 445.922, the Michigan antitrust reform act,

 

1984 PA 274, MCL 445.771 to 445.788.

 

     (2) Premiums for an automobile insurance policy shall be

 

determined by application of the following factors in decreasing

 

order of importance:

 

     (a) The insured's driving safety record.

 

     (b) The number of miles the insured drives annually.

 

     (c) The insured's number of years of driving experience.

 

     (d) Those other factors that the commissioner may adopt by

 

rule and that have a substantial relationship to the risk of loss.

 

     (3) The rules implementing subsection (2) shall set forth the

 

respective weight to be given each factor in determining automobile

 

rates and premiums. The combined weight of all of the other factors

 

permitted in subsection (2)(d) shall be less than the weight of the

 

factor in subsection (2)(c). An insurer's use of any factor without

 

the commissioner's prior approval shall constitute unfair

 

discrimination, notwithstanding any other provision of law. An

 

insurer shall not use any rating factor or surcharge that unfairly

 

discriminates against any insured or applicant.

 

     (4) The commissioner shall not adopt rules or approve rates

 


that are based directly or indirectly on religion, race, color,

 

income, national origin, sex, familial status, marital status,

 

credit history, prior insurance coverage, prior insurer, territory,

 

or any rating factor that unfairly discriminates against any

 

insured or applicant. Rates and rating factors shall not be

 

considered unfairly discriminatory due to compliance with this

 

chapter, notwithstanding any contrary provision of law.

 

     (5) This section does not prohibit the following:

 

     (a) Any agreement to collect, compile, and disseminate

 

historical data on paid claims or reserves for reported claims,

 

provided such data are contemporaneously transmitted to the

 

commissioner.

 

     (b) Participation in any joint arrangement established by

 

statute or by the commissioner to assure availability of insurance.

 

     (6) Notwithstanding any other provision of law, an insurer

 

shall not cancel or refuse to renew an insurance policy except for

 

1 or more of the following:

 

     (a) Nonpayment of premium currently due.

 

     (b) Conviction of the named insured of a crime having as 1 of

 

its necessary elements an act increasing the risk of loss posed by

 

any hazard insured against under the policy.

 

     (c) Fraud or material misrepresentation by the named insured

 

in obtaining the insurance or pursuing a claim under the policy.

 

     (d) The hazard insured against has substantially increased.

 

     (e) Physical changes in the insured property that result in

 

the property becoming uninsurable, as defined by rules adopted by

 

the commissioner.

 


     (7) An insurer shall not refuse to issue or renew an insurance

 

policy, and shall not increase premiums or deny a discount on the

 

basis of the following:

 

     (a) The following claims made by the applicant:

 

     (i) Claims resulting from a loss due to natural causes,

 

including, but not limited to, floods, earthquakes, lightning, and

 

any weather-related event in which the loss is not the direct

 

result of gross negligence by the applicant or insured.

 

     (ii) Claims resulting from fire losses where the fire did not

 

start on the insured's property.

 

     (iii) Claims that are filed but are not paid, are within the

 

claimant's deductible, or are not covered by the policy.

 

     (iv) Claims that are paid in full by another insurance policy

 

or a third party.

 

     (v) Claims in which the loss is not the direct result of gross

 

negligence by the applicant or insured and for which the risk of

 

loss has been mitigated through the removal of the hazard, the

 

repair of the damage or defect, or other changes to the property or

 

condition causing the loss that eliminate the insurer's increased

 

exposure to loss.

 

     (vi) Claims arising from hazards for which the policy no longer

 

provides coverage.

 

     (vii) Claims concerning a property that is no longer owned by

 

the applicant or insured.

 

     (b) An inquiry about the scope or nature of coverage, in which

 

the inquiry did not result in the filing of a claim or resulted in

 

a claim that does not qualify under this chapter.

 


     (c) Losses where an insurance claim is not filed.

 

     (8) An insurer shall not refuse to issue a residential

 

property insurance policy on the basis of claims previously made

 

concerning the property to be insured, unless the property presents

 

an ongoing hazard that violates the insurer's underwriting systems.

 

     (9) The factors prohibited in subsection (4) apply to all

 

personal insurance coverage subject to this chapter. An insurer

 

shall not use rates, rating factors, or underwriting systems and

 

shall not charge premiums that are based directly or indirectly on

 

factors prohibited in subsection (4), education, or occupation.

 

     (10) The commissioner may adopt rules permitting insurers to

 

use territory as a rating factor only if the rates and premiums do

 

not unfairly discriminate against any insured or applicant. If the

 

commissioner adopts such rules, they must comply with subsection

 

(12) and will regulate rates for insurance coverage subject to this

 

chapter as provided in section 1966, notwithstanding any other

 

provision of law.

 

     (11) The use of territory in rates, rating factors, premiums,

 

or underwriting systems for personal auto insurance is prohibited

 

as provided in subsection (4), except that territory may be used as

 

a rating factor for comprehensive insurance coverage subject to the

 

rate approval standards in section 1961. If territory is used as a

 

rating factor in this manner, it must be assigned the least weight

 

among all factors permitted under subsection (2)(d).

 

     (12) Except for the factors and weights provided in section

 

1960(2) and (3) and the weight provided in this section governing

 

the use of territory in auto coverage, the rules shall provide the

 


following regarding all personal insurance:

 

     (a) That no factor shall be used that has not been found by

 

the commissioner to be a statistically valid predictor of loss

 

costs, and no factor may be given a weight that exceeds its

 

statistical association with loss costs. The insurer shall have the

 

burden of proving the validity of proposed rating factors.

 

     (b) No rating factor shall be used to the extent that it

 

operates as a proxy for any factor prohibited by subsections (4) or

 

(9).

 

     (c) A prohibition of the use of a factor as a proxy for a

 

prohibited factor as follows:

 

     (i) The insurer shall perform an analysis of the statistical

 

association of loss costs with each of the prohibited factors,

 

taken separately and together.

 

     (ii) The insurer shall then perform an analysis, using the same

 

data and consistent methodology, of the statistical association of

 

each factor it proposes to use, taken separately and together, with

 

the variance in loss costs unexplained by the prohibited factors.

 

     (iii) Each rating factor shall have the weight demonstrated to

 

be appropriate based on its statistical association with variance

 

in loss costs unexplained by the prohibited factors.

 

     (iv) No factor may be used unless it is shown to be a

 

statistically significant predictor of variance in loss costs

 

unexplained by the prohibited factors when controlling for the

 

other factors to be used.

 

     Sec. 1961. (1) No rate shall be approved or remain in effect

 

which is excessive, inadequate, unfairly discriminatory, or

 


otherwise in violation of this chapter. The commissioner has

 

authority to refund a premium to a consumer, including a premium

 

charged by the catastrophic claims association, imposed or charged

 

in violation of this section. In considering whether a rate is

 

excessive, inadequate, or unfairly discriminatory, the commissioner

 

shall consider whether the rate mathematically reflects the

 

insurance company's investment income but shall not consider the

 

degree of competition among insurers. In considering whether a rate

 

is unfairly discriminatory, the commissioner shall consider whether

 

application of the rate to persons who have similar risks of loss

 

could result in their paying premiums that are not similar.

 

     (2) The commissioner shall take into account any rules adopted

 

under section 1960(3) regarding the formula for determining rates

 

that are excessive or inadequate.

 

     (3) Every insurer that desires to change any rate shall file a

 

complete rate application with the commissioner. A complete rate

 

application shall include, but not be limited to, all of the

 

following information for the 3 preceding years:

 

     (a) Premiums written.

 

     (b) Premiums earned.

 

     (c) Unearned premiums.

 

     (d) The dollar amount of claims paid.

 

     (e) The number of outstanding claims.

 

     (f) Net loss reserves for outstanding claims excluding claims

 

incurred but not reported.

 

     (g) Net loss reserves for claims incurred but not reported.

 

     (h) Losses incurred as a percentage of premiums earned.

 


     (i) Net investment gain or loss and other income or gain or

 

loss allocated to products liability lines.

 

     (j) Net income before federal and foreign income taxes.

 

     (k) Expenses incurred including loss adjustment expense,

 

commission and brokerage expense, other acquisition expense, and

 

general expense.

 

     (l) Such other information as the commissioner may require.

 

     (4) The applicant shall have the burden of proving that the

 

requested rate change is justified and meets the requirements of

 

this chapter.

 

     (5) Producer fees on personal lines of insurance, if allowed,

 

shall be determined by the commissioner and shall be reasonable and

 

customary.

 

     (6) The commissioner shall notify the public of any

 

application by an insurer after determining that the application is

 

complete. A rate application shall be considered complete no later

 

than 30 days after receipt by the commissioner. This time period is

 

tolled if the commissioner considers any item in the filing

 

incomplete and so informs the applicant. The commissioner shall

 

approve or reject the application within 60 days after public

 

notice unless any of the following occur within this time period:

 

     (a) A consumer or his or her representative requests a hearing

 

within 45 days after public notice and the commissioner grants the

 

hearing. The commissioner must either grant or deny any petition

 

for hearing no later than 15 days after the hearing request.

 

     (b) The commissioner on his or her own motion determines to

 

hold a hearing or determines that a hearing is required by law.

 


     (7) Upon a showing of good cause, the commissioner may extend

 

the review period for up to an additional 60 days.

 

     (8) Upon a timely request, the commissioner shall hold a

 

hearing on a proposed rate adjustment that exceeds 5% of the then

 

applicable rate. The overall rate change shall not exceed 7% within

 

any 12-month period without a hearing. The commissioner may waive

 

this hearing requirement for rates affecting only large commercial

 

or industrial customers.

 

     (9) For 1 year immediately after the effective date of this

 

chapter, an insurer may seek a rate increase for a line of

 

insurance to protect the insurer's right to earn a fair rate of

 

return on surplus used and useful for that line of insurance. The

 

commissioner may increase rates and premiums reduced by the

 

rollback provided for in section 1958 only if the commissioner

 

finds, after an administrative hearing, that the reduced rate would

 

result in a taking under the state constitution of 1963 or be

 

considered confiscatory under the constitution of the United

 

States.

 

     (10) The underwriting systems employed by insurers shall be

 

subject to the application, review, and disclosure requirements

 

applicable to rate applications pursuant to this chapter. As used

 

in this section, "underwriting systems" means any rules, plans,

 

manuals, and guidelines used to determine eligibility to purchase

 

insurance; to calculate rates and premiums, including credits and

 

surcharges; to assign a person to a rating tier; to place a person

 

with an affiliated company; or to establish the financing or terms

 

of payment of a policy of insurance.

 


     Sec. 1962. (1) The commissioner shall provide consumers, on

 

the office of financial and insurance regulation website and in

 

plain English and in Spanish, a comparison of the rate in effect

 

for each personal line of insurance for every insurer offering

 

insurance in Michigan.

 

     (2) Any rate application or other public filing by an insurer

 

that is required by this chapter shall be submitted to the

 

commissioner in electronic form, in a format specified by the

 

commissioner, and shall be placed on the website of the office of

 

financial and insurance regulation in its entirety for a period of

 

at least 5 years, where it may be accessed by the public at no

 

charge.

 

     (3) Public notice required by this chapter shall be made

 

through distribution to the news media, made through display on the

 

office of financial and insurance regulation website, and made

 

available to any member of the public who asks to be placed on a

 

mailing list that the commissioner shall establish for that

 

purpose.

 

     (4) Notwithstanding any other law, all information provided to

 

the commissioner pursuant to this chapter and information submitted

 

in support of a rate application shall be available for public

 

inspection.

 

     (5) The catastrophic claims association created under section

 

3104 is subject to the freedom of information act, 1976 PA 442, MCL

 

15.231 to 15.246, and the open meetings act, 1976 PA 267, MCL

 

15.261 to 15.275. As part of the rate approval authority, the

 

commissioner shall approve, reject, or modify premiums charged to

 


consumers by the catastrophic claims association.

 

     Sec. 1963. (1) Hearings shall be conducted pursuant to

 

administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to

 

24.328. Discovery shall be liberally construed, and disputes shall

 

be determined by the administrative law judge.

 

     (2) The commissioner shall determine whether to hold a hearing

 

and serve a notice of hearing to the applicant and all interested

 

parties within 60 days of the public notice required by subdivision

 

(6) of section 1961. The commissioner must complete any such

 

hearing within 120 days of the notice of hearing, except upon good

 

cause shown, the commissioner may extend the time to complete the

 

hearing by no more than 60 days.

 

     (3) All final orders or decisions by the commissioner are

 

subject to de novo judicial review by the courts of the state, and

 

proceedings on review shall be as provided by law. For purposes of

 

judicial review, a decision to hold a hearing is not a final order

 

or decision except that a decision not to hold a hearing is

 

considered a final order or decision.

 

     (4) The commissioner's failure to hold or not to hold a

 

hearing required under this chapter is subject to judicial review.

 

     (5) Any person may bring a private cause of action in a court

 

of competent jurisdiction to challenge any conduct subject to this

 

chapter and may also do the following through a civil or

 

administrative action:

 

     (a) Initiate or intervene in any proceeding permitted or

 

established by this chapter.

 

     (b) Challenge any action of the commissioner under this

 


chapter.

 

     (c) Enforce any provision of this chapter.

 

     (6) The commissioner or a court shall award reasonable

 

advocacy and witness fees and expenses to any person who

 

demonstrates that the person represents the interests of consumers

 

and makes a substantial contribution to the adoption of any order,

 

rule, or decision by the commissioner or a court. Where such

 

advocacy occurs in response to a rate application, the award shall

 

be assessed against and paid by the applicant.

 

     (7) The commissioner shall provide that the insurers pay fees

 

or assessments sufficient to cover administrative and operational

 

costs arising from this chapter and kept in a restricted fund. The

 

commissioner shall create an entity to receive and disburse funds

 

to any group as described in subsection (6). The commissioner shall

 

assess the insurance industry based upon an amount equal to the

 

prior year's lobbying expenses and campaign finance donations. The

 

insurance industry shall be required to pay the assessment imposed

 

by the commissioner.

 

     (8) Whenever it is determined, either in a civil action

 

brought pursuant to this chapter or in an administrative proceeding

 

before the commissioner, that an insurer has violated a provision

 

of this chapter or otherwise owes money to a consumer, the insurer

 

shall pay interest to the consumer at the rate of 25% per year.

 

     (9) Any insurer that brings a challenge to the

 

constitutionality, application, or enforcement of any provision of

 

this act shall reimburse the taxpayers for the legal fees and costs

 

incurred by the state of Michigan in defending such a challenge if

 


that challenge is unsuccessful, as determined by the court.

 

     Sec. 1964. (1) Any person, insurer, organization, group, or

 

association that fails to comply with a final order of the

 

commissioner under this chapter shall be liable to the state in an

 

amount not exceeding $50,000.00, but if the failure is willful, the

 

person or legal entity shall be liable to the state in an amount

 

not exceeding $250,000.00. This penalty is cumulative and shall be

 

in addition to any penalty arising under any other law or rule. The

 

commissioner shall collect the amount so payable and may bring an

 

action in the name of the people of the state of Michigan to

 

enforce collection.

 

     (2) A willful violation of this chapter by any person is a

 

misdemeanor.

 

     (3) In addition to the other penalties provided in this

 

chapter, the commissioner may suspend or revoke, in whole or in

 

part, the certificate of authority of any insurer that fails to

 

comply with the provisions of this chapter.

 

     Sec. 1965. (1) The commissioner has authority, including the

 

authority to adopt rules, as is necessary to implement this

 

chapter. The commissioner shall, however, promulgate rules

 

regarding the following:

 

     (a) The formula for determining excessive or inadequate rates.

 

     (b) The format of rate filings, which shall become mandatory

 

upon the effective date of the rules and shall be made available to

 

the public on the website of the office of financial and insurance

 

regulation.

 

     (c) Definitions of standardized coverage in all lines of

 


insurance and underwriting requirements, as an aid for comparing

 

insurance quotes.

 

     (d) Methods of interpreting comparative pricing information.

 

     (2) The commissioner shall promulgate rules under the

 

administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to

 

24.328, to implement this section and shall amend, rescind, or

 

otherwise conform the existing rules to incorporate the

 

requirements of this section by October 1, 2011. Insurers may

 

submit applications pursuant to this chapter that comply with those

 

rules prior to that date, provided that no such application that

 

violates this chapter shall be approved prior to that date. Any

 

rule existing on the effective date of this chapter that conflicts

 

with this chapter is rescinded or amended as provided for under

 

section 31 of the administrative procedures act of 1969, 1969 PA

 

306, MCL 24.231.

 

     Sec. 1966. (1) This chapter shall apply to all property

 

casualty insurance on risks or on operations in the state of

 

Michigan, including, but not limited to, insurance under chapters

 

20, 21, 22, 24, 26, 29, 31, 32, and 33 as well as insurance for

 

exempt commercial policyholders as defined in section 2236(9). This

 

chapter shall not apply to surety, title, worker's compensation,

 

life, and health insurance.

 

     (2) This chapter shall be liberally construed and applied in

 

order to fully promote its underlying purposes.

 

     (3) Sections 2403 and 2603 do not apply to the extent that

 

either or both sections conflict with this chapter, and any

 

language in those sections in conflict with this chapter is

 


superseded by this chapter.

 

     (4) Notwithstanding section 2912, a person shall not be

 

charged a rate or premium exceeding or in conflict with that rate

 

or premium approved by the commissioner under this chapter.

 

     (5) This chapter shall apply to insurance written on a group,

 

franchise, blanket policy, or similar basis that offers home

 

insurance or automobile insurance to all members of the group,

 

franchise plan, or blanket coverage who are eligible persons.

 

     (6) Notwithstanding any contrary law:

 

     (a) This chapter shall amend or modify any pre-existing law

 

that applies to the business of insurance regardless if the chapter

 

does not expressly amend or modify the law.

 

     (b) Any general consumer protection statute shall apply to the

 

business of insurance in this state covered under this chapter

 

regardless if the statute does not expressly refer to the business

 

of insurance or this chapter.

 

     Enacting section 1. Sections 2027, 2047, 2108, 2109, 2110a,

 

2111e, 2114, 2119a, 2120, 2130, 2414, 2430, and 2614 of the

 

insurance code of 1956, 1956 PA 218, MCL 500.2027, 500.2047,

 

500.2108, 500.2109, 500.2110a, 500.2111e, 500.2114, 500.2119a,

 

500.2120, 500.2130, 500.2414, 500.2430, and 500.2614, are repealed.