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:
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
(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
(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
(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
(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
(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
(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
(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
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
(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
(5) Producer fees on personal lines of insurance, if allowed,
shall be determined by the commissioner and shall be reasonable and
(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
(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
(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
(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
(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
(a) Initiate or intervene in any proceeding permitted or
established by this chapter.
(b) Challenge any action of the commissioner under this
(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
(2) A willful violation of this chapter by any person is a
(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
(c) Definitions of standardized coverage in all lines of
insurance and underwriting requirements, as an aid for comparing
(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.