February 15, 2005, Introduced by Senators SCOTT, LELAND, OLSHOVE, CLARKE and BRATER and referred to the Committee on Banking and Financial Institutions.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending sections 2106, 2108, 2109, 2110, 2114, and 2127 (MCL
500.2106, 500.2108, 500.2109, 500.2110, 500.2114, and 500.2127) and
by adding sections 2103a, 2107a, 2109a, and 2128; and to repeal
acts and parts of acts.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
Sec. 2103a. As used in this chapter, "total return rating"
means the consideration of total revenue and available assets of
the insurer, including, but not limited to, investment income,
capital and surplus, underwriting and operating profits, premium
revenue, and all other reserves.
Sec. 2106. Except as specifically provided in this chapter,
the
provisions of chapter 24 and chapter 26 shall do not
apply to
automobile
insurance and home insurance. An Until 1 year after the
effective date of the amendatory act that added section 2107a, an
insurer may use rates for automobile insurance or home insurance as
soon as those rates are filed. Beginning 1 year after the effective
date of the amendatory act that added section 2107a, an insurer
shall not use rates for automobile insurance or home insurance
until those rates have been approved by the commissioner. To the
extent
that other provisions of this code act are inconsistent
with
the provisions of this chapter, this chapter shall govern
governs with respect to automobile insurance and home insurance.
Sec. 2107a. (1) By not later than 1 year after the effective
date of the amendatory act that added this section and annually
thereafter, each insurer subject to this chapter shall file base
rates for automobile insurance and home insurance and shall make
filings that conform to this act as amended by the amendatory act
that added this section.
(2) The commissioner shall review a filing submitted under
subsection (1) and shall approve or disapprove the filing within 60
days after its submission.
(3) A filing approved under subsection (2) shall not be
revised for 12 months after the effective date of the filing unless
the revision meets either of the following:
(a) Lowers the price of the coverage.
(b) Is in response to a ruling or decision by the
commissioner, the court, or a hearing officer.
(4) A rule change or other change filed with the commissioner
that results in a change in the cost of coverage is considered a
revision in a rate filing under this section.
(5) If a filing is disapproved under subsection (2), the
insurer, within 30 days of the order of disapproval, shall make a
revised filing with the commissioner. The revised filing is subject
to review under this chapter in the same manner as an original
filing made under this chapter.
Sec.
2108. (1) On the effective date thereof, each Each
insurer shall file with the commissioner every manual of
classification, every manual of rules and rates, every rating plan,
and every modification of a manual of classification, manual of
rules
and rates, or a rating plan which that it proposes to use
for automobile insurance and home insurance. Each filing shall
state the character and extent of the coverage contemplated. Each
insurer subject to this chapter who maintains rates in any part of
this state shall at all times maintain rates in effect for all
eligible persons meeting the underwriting criteria of the insurer.
(2) An insurer may satisfy its obligation to make filings
under subsection (1) by becoming a member of, or a subscriber to, a
rating organization licensed under chapter 24 or chapter 26 which
makes those filings, and by filing with the commissioner a copy of
its authorization of the rating organization to make those filings
on its behalf. Nothing contained in this chapter shall be construed
as requiring any insurer to become a member of or a subscriber to
any rating organization. Insurers may file and use deviations from
filings made on their behalf, which deviations shall be subject to
the provisions of this chapter.
(3) Each filing shall be accompanied by a certification by or
on behalf of the insurer that, to the best of its information and
belief, the filing conforms to the requirements of this chapter.
(4) Each filing shall include information that supports the
filing with respect to the requirements of section 2109 or 2109a.
The information may include 1 or more of the following:
(a) The experience or judgment of the insurer or rating
organization making the filing.
(b) The interpretation of the insurer or rating organization
of any statistical data it relies upon.
(c) The experience of other insurers or rating organizations.
(d) Any other relevant information.
(5) A filing and any accompanying information shall be open to
public inspection upon filing.
(6) An insurer shall not make, issue, or renew a contract or
policy
except in accordance with filings which that are in effect
for the insurer pursuant to this chapter.
Sec.
2109. (1) All Until 1
year after the effective date of
the amendatory act that added section 2109a, all rates for
automobile insurance and home insurance shall be made in accordance
with the following provisions:
(a) Rates shall not be excessive, inadequate, or unfairly
discriminatory. A rate shall not be held to be excessive unless the
rate is unreasonably high for the insurance coverage provided and a
reasonable degree of competition does not exist for the insurance
to which the rate is applicable.
(b) A rate shall not be held to be inadequate unless the rate
is unreasonably low for the insurance coverage provided and the
continued use of the rate endangers the solvency of the insurer; or
unless the rate is unreasonably low for the insurance provided and
the use of the rate has or will have the effect of destroying
competition among insurers, creating a monopoly, or causing a kind
of insurance to be unavailable to a significant number of
applicants who are in good faith entitled to procure that insurance
through ordinary methods.
(c) A rate for a coverage is unfairly discriminatory in
relation to another rate for the same coverage if the differential
between the rates is not reasonably justified by differences in
losses, expenses, or both, or by differences in the uncertainty of
loss, for the individuals or risks to which the rates apply. A
reasonable justification shall be supported by a reasonable
classification system; by sound actuarial principles when
applicable; and by actual and credible loss and expense statistics
or, in the case of new coverages and classifications, by reasonably
anticipated loss and expense experience. A rate is not unfairly
discriminatory because it reflects differences in expenses for
individuals or risks with similar anticipated losses, or because it
reflects differences in losses for individuals or risks with
similar expenses.
(2) A determination concerning the existence of a reasonable
degree of competition with respect to subsection (1)(a) shall take
into account a reasonable spectrum of relevant economic tests,
including the number of insurers actively engaged in writing the
insurance in question, the present availability of such insurance
compared to its availability in comparable past periods, the
underwriting return of that insurance over a period of time
sufficient to assure reliability in relation to the risk associated
with that insurance, and the difficulty encountered by new insurers
in entering the market in order to compete for the writing of that
insurance.
Sec. 2109a. (1) Beginning 1 year after the effective date of
the amendatory act that added this section, all rates for
automobile insurance and home insurance shall be made in accordance
with total return rating and the following provisions:
(a) Rates shall not be excessive, inadequate, or unfairly
discriminatory. An automobile insurance rate shall not be approved
by the commissioner unless it is actuarially justified based upon
the information received pursuant to section 2128.
(b) A rate shall not be held to be inadequate unless the rate,
after consideration of investment income and surplus, is
unreasonably low for the insurance coverage provided and is
insufficient to sustain projected losses and expenses; or unless
the rate is unreasonably low for the insurance provided and the use
of the rate has or will have the effect of destroying competition
among insurers, creating a monopoly, or causing a kind of insurance
to be unavailable to a significant number of applicants who are in
good faith entitled to procure that insurance through ordinary
methods.
(c) A rate for coverage is unfairly discriminatory in relation
to another rate for the same coverage if the differential between
the rates is not reasonably justified by differences in losses,
expenses, or both, or by differences in the uncertainty of loss,
for the individuals or risks to which the rates apply. A reasonable
justification shall be supported by a reasonable classification
system; by sound actuarial principles when applicable; and by
actual and credible loss and expense statistics or, in the case of
new coverages and classifications, by reasonably anticipated loss
and expense experience. A rate is not unfairly discriminatory
because it reflects differences in expenses for individuals or
risks with similar anticipated losses, or because it reflects
differences in losses for individuals or risks with similar
expenses.
(d) For automobile insurance, shall be reviewed by the
commissioner by examining the insurer's report prepared pursuant to
section 2128.
(2) The commissioner shall not approve a rate increase for
automobile insurance unless the commissioner determines that the
data received from the report prepared pursuant to section 2128
justifies a rate increase. The commissioner shall not approve a
rate increase for automobile insurance by examining actuarial data
from a line other than the insurer's automobile insurance line or
if the insurer fails to file the data required by section 2128. The
commissioner shall not approve a rate increase for home insurance
by examining actuarial data from a line other than the insurer's
home insurance line. The commissioner shall not approve a rate
increase if the commissioner finds the insurer's administrative
expenses to be excessive.
(3) If the commissioner determines that a rate for automobile
insurance or home insurance is excessive, the commissioner may
order the insurer to make a base rate reduction adjustment.
(4) Each automobile insurer shall submit annually to the
commissioner a complete breakdown of litigation costs associated
with first and third party automobile insurance claims that have
been received or are in the process of being litigated and of
amounts reserved to be used for those expenses. The commissioner
shall not approve a rate for automobile insurance if the
administrative costs associated with the litigation of first party
claims exceed 1% of the administrative costs associated with the
litigation of third party claims. Each automobile insurance
insurer's total administrative expenses shall be allocated to each
territory according to the insurer's proportionate share of premium
written in each territory. Each premium charged within each
territory shall contain an equal share of the administrative
expense for the territory. Rates shall be filed and charged under
this section so that each automobile insurance premium includes an
equal share of each insurer's overall administrative expense.
Sec. 2110. (1) In developing and evaluating rates pursuant to
the
standards prescribed in section sections 2109 and 2109a, due
consideration shall be given to past and prospective loss
experience within and outside this state, to catastrophe hazards,
if any; to a reasonable margin for underwriting profit and
contingencies; to dividends, savings, or unabsorbed premium
deposits allowed or returned by insurers to their policyholders,
members, or subscribers; to past and prospective expenses, both
countrywide and those specially applicable to this state exclusive
of
assessments under this code act; to assessments under this
code
act; to underwriting
practice and judgment; and to all other
relevant factors within and outside this state.
(2) The systems of expense provisions included in the rates
for use by any insurer or group of insurers may differ from those
of other insurers or groups of insurers to reflect the requirements
of the operating methods of the insurer or group with respect to
any kind of insurance, or with respect to any subdivision or
combination thereof for which subdivision or combination separate
expense provisions are applicable.
(3) Risks may be grouped by classifications for the
establishment of rates and minimum premiums. The classifications
may measure differences in losses, expenses, or both.
Sec. 2114. (1) A person or organization aggrieved with respect
to
any filing which that is in effect and which that
affects
the person or organization may make written application to the
commissioner for a hearing on the filing. However, the insurer or
rating
organization which that made the filing shall not be
authorized to proceed under this subsection. The application shall
specify the grounds to be relied upon by the applicant. If the
commissioner finds that the application is made in good faith, that
the applicant would be so aggrieved if the grounds specified are
established, or that the grounds specified otherwise justify
holding a hearing, the commissioner, not more than 30 days after
receipt
of the application, shall hold a hearing in accordance with
Act
No. 306 of the Public Acts of 1969, as amended the
administrative procedures act of 1969, 1969 PA 306, MCL 24.201 to
24.328, upon not less than 10 days' written notice to the
applicant, the insurer, and the rating organization which made the
filing.
(2) If after hearing initiated under subsection (1) or upon
the
commissioner's own motion pursuant to Act No. 306 of the
Public
Acts of 1969, as amended the administrative procedures act
of 1969, 1969 PA 306, MCL 24.201 to 24.328, the commissioner finds
that a filing does not meet the requirements of sections 2109,
2109a, and 2111, the commissioner shall issue an order stating the
specific reasons for that finding. The order shall state when,
within a reasonable time after issuance of the order, the filing
shall be considered no longer effective. A copy of the order shall
be sent to the applicant, if any, and to each insurer and rating
organization subject to the order. The order shall not affect a
contract or policy made or issued before the date the filing
becomes ineffective, as indicated in the commissioner's order.
Sec. 2127. The commissioner may by rule prospectively require
insurers, rating organizations, and advisory organizations to
collect
and report data only to the extent necessary to monitor
and evaluate the automobile and home insurance markets in this
state. The commissioner shall authorize the use of sampling
techniques in each instance where sampling is practicable and
consistent with the purposes for which the data, by county, are to
be collected and reported. Rules promulgated pursuant to this
section are in addition to, and do not replace, the reporting
requirements in section 2128.
Sec. 2128. By April 1 of each year, each insurer who issues
automobile insurance in this state shall file with the commissioner
on forms prescribed by the commissioner the following automobile
insurance data, by territory, for the prior calendar year:
(a) With respect to personal protection insurance coverage:
(i) The number of claims for personal protection insurance
benefits for which payment is made.
(ii) The number of claims for personal protection insurance
benefits that are closed without payment.
(iii) The number of claims for personal protection insurance
benefits that involve some form of litigation and are closed
without payment.
(iv) The number of claims for personal protection insurance
benefits that involve litigation and for which payment is made
after litigation commences, including the length of time between
the filing of the claim and the first payment.
(v) The amount of interest charges paid on claims for personal
protection insurance benefits and the number of cases for which
interest charges have been paid.
(vi) The litigation costs for claims for personal protection
insurance benefits.
(vii) The number of cases going to verdict and the amount of
the verdict in those cases where an award is made.
(viii) The number of verdicts of no cause of action.
(ix) The number of cases where attorney fees are paid, the
total amount of attorney fees paid, and the amount of attorney fees
paid for each case where fees were paid.
(b) With respect to property protection insurance coverage:
(i) The number of third party automobile bodily injury tort
claims closed by payment to the claimant before the commencement of
litigation and a breakdown of how many of these claims were death
threshold claims, serious impairment of body function threshold
claims, and permanent serious disfigurement threshold claims.
(ii) The number of third party automobile bodily injury tort
claim lawsuits filed, and a breakdown of how many were filed for
death threshold claims, serious impairment of body function
threshold claims, and permanent serious disfigurement threshold
claims.
(iii) The number of third party automobile bodily injury tort
claims closed by payment to the claimant after the commencement of
litigation and a breakdown of how many of these claims were death
threshold claims, serious impairment of body function threshold
claims, and permanent serious disfigurement threshold claims.
(iv) The dollar amount paid to claimants to settle third party
automobile bodily injury tort claims before and after litigation
had been commenced and a breakdown of the dollar amounts paid for
death threshold claims, serious impairment of body function
threshold claims, and permanent serious disfigurement threshold
claims.
(v) The number and dollar amount paid or reserved for all
bodily injury claims set up or opened, indicating the number and
dollar amount of reserves for claims remaining open at the end of
the reporting period.
Enacting section 1. Sections 2107 and 2109 of the insurance
code of 1956, 1956 PA 218, MCL 500.2107 and 500.2109, are repealed
1 year after the date this amendatory act takes effect.