June 12, 2003, Introduced by Reps. Cheeks, Accavitti, Tobocman, McConico, Clack, Stallworth, Minore, Vagnozzi, Zelenko, Reeves, Plakas, Condino and Hardman and referred to the Committee on Insurance.
A bill to amend 1956 PA 218, entitled
"The insurance code of 1956,"
by amending sections 2106, 2107, 2109, 2110, and 2114 (MCL
500.2106, 500.2107, 500.2109, 500.2110, and 500.2114) and by
adding sections 2103a, 2107a, and 2109a.
THE PEOPLE OF THE STATE OF MICHIGAN ENACT:
1 Sec. 2103a. As used in this chapter, "total return rating"
2 means the consideration of total revenue and available assets of
3 the insurer, including, but not limited to, investment income,
4 capital and surplus, underwriting and operating profits, premium
5 revenue, and all other reserves.
6 Sec. 2106. Except as specifically provided in this chapter,
7 the provisions of chapter
24 and chapter 26 shall do not apply
8 to automobile insurance and home insurance. An insurer may use
9 rates for automobile
insurance or home insurance as soon as
1 those rates are filed. An insurer shall not use rates for
2 automobile insurance until those rates have been approved by the
3 commissioner. To the
extent that other provisions of this code
4 act are inconsistent with the provisions of this chapter, this
5 chapter shall govern governs
with respect to automobile
6 insurance and home insurance.
7 Sec. 2107. (1) On or before September 1, 1980, each insurer
8 subject to this chapter shall make filings in accordance with
9 this chapter for automobile
insurance, home insurance , or
10 both, to be effective not later than January 1, 1981 nor
or
11 earlier than November 1, 1980.
12 (2) With regard to a filing submitted under subsection (1),
13 the commissioner shall conduct a review of the filing on an
14 informal basis, and a dispute with regard to that filing shall
15 not be considered a
contested case under Act No. 306 of the
16 Public Acts of 1969,
as amended the administrative
procedures
17 act of 1969, 1969 PA 306, MCL 24.201 to 24.328. A filing not
18 disapproved within 60 days after its submission shall be
19 considered approved.
20 (3) A filing approved or considered approved under
21 subsection (2) shall
be is exempt from any further proceedings
22 whatsoever under this chapter until July 1, 1981.
23 (4) If a filing is disapproved under subsection (2), the
24 insurer, within 30 days of the order of disapproval, shall make a
25 revised filing with the commissioner. The revised filing shall
26 take effect on January 1,
1981 and shall be is subject to
27 review under this chapter on or after January 1, 1981 in the same
1 manner as subsequent filings made under this chapter.
2 Sec. 2107a. (1) By not later than 1 year after the
3 effective date of this section and annually thereafter, each
4 insurer subject to this chapter shall file base rates for
5 automobile insurance and shall make filings that conform to this
6 act as amended by the amendatory act that added this section.
7 (2) The commissioner shall review a filing submitted under
8 subsection (1) and shall approve or disapprove the filing within
9 60 days after its submission.
10 (3) A filing approved under subsection (2) shall not be
11 revised for 12 months after the effective date of the filing
12 unless the revision meets either of the following:
13 (a) Lowers the price of the coverage.
14 (b) Is in response to a ruling or decision by the
15 commissioner, the court, or a hearing officer.
16 (4) A rule change or other change filed with the commissioner
17 that results in a change in the cost of coverage is considered a
18 revision in a rate filing under this section.
19 (5) If a filing is disapproved under subsection (2), the
20 insurer, within 30 days of the order of disapproval, shall make a
21 revised filing with the commissioner. The revised filing is
22 subject to review under this chapter in the same manner as an
23 original filing made under this chapter.
24 Sec. 2109. (1) All
rates for automobile insurance and
25 home insurance shall be made in accordance with the following
26 provisions:
27 (a) Rates shall not be excessive, inadequate, or unfairly
1 discriminatory. A rate shall not be held to be excessive unless
2 the rate is unreasonably high for the insurance coverage provided
3 and a reasonable degree of competition does not exist for the
4 insurance to which the rate is applicable.
5 (b) A rate shall not be held to be inadequate unless the rate
6 is unreasonably low for the insurance coverage provided and the
7 continued use of the rate endangers the solvency of the insurer;
8 or unless the rate is unreasonably low for the insurance provided
9 and the use of the rate has or will have the effect of destroying
10 competition among insurers, creating a monopoly, or causing a
11 kind of insurance to be unavailable to a significant number of
12 applicants who are in good faith entitled to procure that
13 insurance through ordinary methods.
14 (c) A rate for a coverage is unfairly discriminatory in
15 relation to another rate for the same coverage if the
16 differential between the rates is not reasonably justified by
17 differences in losses, expenses, or both, or by differences in
18 the uncertainty of loss, for the individuals or risks to which
19 the rates apply. A reasonable justification shall be supported
20 by a reasonable classification system; by sound actuarial
21 principles when applicable; and by actual and credible loss and
22 expense statistics or, in the case of new coverages and
23 classifications, by reasonably anticipated loss and expense
24 experience. A rate is not unfairly discriminatory because it
25 reflects differences in expenses for individuals or risks with
26 similar anticipated losses, or because it reflects differences in
27 losses for individuals or risks with similar expenses.
1 (2) A determination concerning the existence of a reasonable
2 degree of competition with respect to subsection (1)(a) shall
3 take into account a reasonable spectrum of relevant economic
4 tests, including the number of insurers actively engaged in
5 writing the insurance in question, the present availability of
6 such insurance compared to its availability in comparable past
7 periods, the underwriting return of that insurance over a period
8 of time sufficient to assure reliability in relation to the risk
9 associated with that insurance, and the difficulty encountered by
10 new insurers in entering the market in order to compete for the
11 writing of that insurance.
12 Sec. 2109a. (1) All rates for automobile insurance shall be
13 reviewed by the commissioner by examining the insurer's report
14 prepared pursuant to section 2128 and shall be made in accordance
15 with total return rating and the following provisions:
16 (a) Rates shall not be excessive, inadequate, or unfairly
17 discriminatory. A rate shall not be approved by the commissioner
18 unless it is actuarially justified based upon the information
19 received pursuant to section 2128.
20 (b) A rate shall not be held to be inadequate unless the
21 rate, after consideration of investment income and surplus, is
22 unreasonably low for the insurance coverage provided and is
23 insufficient to sustain projected losses and expenses; or unless
24 the rate is unreasonably low for the insurance provided and the
25 use of the rate has or will have the effect of destroying
26 competition among insurers, creating a monopoly, or causing a
27 kind of insurance to be unavailable to a significant number of
1 applicants who are in good faith entitled to procure that
2 insurance through ordinary methods.
3 (c) A rate for a coverage is unfairly discriminatory in
4 relation to another rate for the same coverage if the
5 differential between the rates is not reasonably justified by
6 differences in losses, expenses, or both, or by differences in
7 the uncertainty of loss, for the individuals or risks to which
8 the rates apply. A reasonable justification shall be supported
9 by a reasonable classification system; by sound actuarial
10 principles when applicable; and by actual and credible loss and
11 expense statistics or, in the case of new coverages and
12 classifications, by reasonably anticipated loss and expense
13 experience. A rate is not unfairly discriminatory because it
14 reflects differences in expenses for individuals or risks with
15 similar anticipated losses, or because it reflects differences in
16 losses for individuals or risks with similar expenses.
17 (2) The commissioner shall not approve a rate increase for
18 automobile insurance unless the commissioner determines that the
19 data received from the report prepared pursuant to section 2128
20 justifies a rate increase. The commissioner shall not approve a
21 rate increase by examining actuarial data from a line other than
22 the insurer's automobile insurance line or if the insurer fails
23 to file the data required by section 2128. The commissioner
24 shall not approve a rate increase if the commissioner finds the
25 insurer's administrative expenses to be excessive.
26 (3) Each insurer shall submit annually to the commissioner a
27 complete breakdown of litigation costs associated with first and
1 third party automobile insurance claims that have been received
2 or are in the process of being litigated and of amounts reserved
3 to be used for those expenses. The commissioner shall not
4 approve a rate if the administrative costs associated with the
5 litigation of first party claims exceed 1% of the administrative
6 costs associated with the litigation of third party claims. Each
7 automobile insurance insurer's total administrative expenses
8 shall be allocated to each territory according to the insurer's
9 proportionate share of premium written in each territory. Each
10 premium charged within each territory shall contain an equal
11 share of the administrative expense for the territory. Rates
12 shall be filed and charged under this section so that each
13 automobile insurance premium includes an equal share of each
14 insurer's overall administrative expense.
15 Sec. 2110. (1) In developing and evaluating rates pursuant
16 to the standards
prescribed in section sections 2109 and 2109a,
17 due consideration shall be given to past and prospective loss
18 experience within and outside this state, to catastrophe hazards,
19 if any; to a reasonable margin for underwriting profit and
20 contingencies; to dividends, savings, or unabsorbed premium
21 deposits allowed or returned by insurers to their policyholders,
22 members, or subscribers; to past and prospective expenses, both
23 countrywide and those specially applicable to this state
24 exclusive of assessments
under this code act; to assessments
25 under this code act;
to underwriting practice and judgment; and
26 to all other relevant factors within and outside this state.
27 (2) The systems of expense provisions included in the rates
1 for use by any insurer or group of insurers may differ from those
2 of other insurers or groups of insurers to reflect the
3 requirements of the operating methods of the insurer or group
4 with respect to any kind of insurance, or with respect to any
5 subdivision or combination thereof for which subdivision or
6 combination separate expense provisions are applicable.
7 (3) Risks may be grouped by classifications for the
8 establishment of rates and minimum premiums. The classifications
9 may measure differences in losses, expenses, or both.
10 Sec. 2114. (1) A person or organization aggrieved with
11 respect to any filing which
that is in effect and which that
12 affects the person or organization may make written application
13 to the commissioner for a hearing on the filing. However, the
14 insurer or rating
organization which that made the filing shall
15 not be authorized to proceed under this subsection. The
16 application shall specify the grounds to be relied upon by the
17 applicant. If the commissioner finds that the application is
18 made in good faith, that the applicant would be so aggrieved if
19 the grounds specified are established, or that the grounds
20 specified otherwise justify holding a hearing, the commissioner,
21 not more than 30 days after receipt of the application, shall
22 hold a hearing in
accordance with Act No. 306 of the Public Acts
23 of 1969, as amended the administrative procedures act of 1969,
24 1969 PA 306, MCL 24.201 to 24.328, upon not less than 10 days'
25 written notice to the applicant, the insurer, and the rating
26 organization which made the filing.
27 (2) If after hearing initiated under subsection (1) or upon
1 the commissioner's own
motion pursuant to Act No. 306 of the
2 Public Acts of 1969,
as amended the administrative
procedures
3 act of 1969, 1969 PA 306, MCL 24.201 to 24.328, the commissioner
4 finds that a filing does not meet the requirements of sections
5 2109, 2109a, and 2111, the commissioner shall issue an order
6 stating the specific reasons for that finding. The order shall
7 state when, within a reasonable time after issuance of the order,
8 the filing shall be considered no longer effective. A copy of
9 the order shall be sent to the applicant, if any, and to each
10 insurer and rating organization subject to the order. The order
11 shall not affect a contract or policy made or issued before the
12 date the filing becomes ineffective, as indicated in the
13 commissioner's order.
14 Enacting section 1. This amendatory act does not take
15 effect unless Senate Bill No. ____ or House Bill No. 4839
16 (request no. 03473'03) of the 92nd Legislature is enacted into
17 law.