Complying with underwriting requirements of the essential insurance act

Issued and entered February 10, 1993 by David J. Dykhouse, Commissioner of Insurance

It has been brought to the attention of the Commissioner that some insurers may be imposing restrictions on home and automobile agents apparently for the purpose of avoiding the underwriting requirements of the Essential Insurance Act, which is contained in Chapter 21 of the Michigan Insurance Code of 1956, as amended (Code), MCLA 500.100 et seq.; MSA 24.1100 et seq. The Commissioner is issuing this bulletin to alert insurers and agents to practices that have the potential of violating the Essential Insurance Act.

Agents' duties under the Essential Insurance Act are clearly delineated in Section 2116(1) of the Code, MCLA 500.2116(1); MSA 24.12116(1), and include the duty to not attempt to channel an eligible person away from an insurer or insurance coverage with the purpose or effect of avoiding an agent's obligation to submit an application or an insurer's obligation to accept an eligible person.

To protect agents in meeting their obligations, Section 1209 of the Code, MCLA 500.1209; MSA 24.11209, prohibits an insurer from terminating an agent's authority for carrying out the agent's duties under the Essential Insurance Act. Section 2116(2) of the Code, MCLA 500.2116(2); MSA 24.12116(2), prohibits a company from paying an agent less than normal commissions or normal compensation or salary because of the expected or actual experience produced by the agent's business or because of the geographic location of business written by the agent.

Rules for home and automobile insurance are set forth in Sections 2117 and 2118 of the Code, MCLA 500.2117 and MCLA 500.2117; MSA 24.12117 and MSA 24.12118, respectively. Section 2119 of the Code, MCLA 500.2119; MSA 24.12119, requires that insurers shall apply these rules without exception throughout this state so that every applicant or insured conforming with them will be insured or renewed.

Accordingly the following practices, none of which are authorized by the Essential Insurance Act, could be violations of that act, if engaged in by insurers or their agents.

1. The establishment of quotas for agents for applications from eligible persons for automobile insurance in those situations where the insurer is not writing or has not received applications for both the automobile and home insurance for that eligible person.

2. The establishment of territorial restrictions within the state on an agent's solicitation of application for automobile or home insurance.

3. Utilization of claims experience of eligible persons as a basis for refusing to issue or renew a policy of automobile insurance or to issue a policy of home insurance.

4. Insurer programs which encourage or provide incentives to agents to have them persuade insureds to cancel policies of home or automobile insurance rather than submit a claim.

5. Insurer practice of designating young drivers as the primary driver under a policy of automobile insurance, when that designation is not justified by proportionate use of the insured vehicle.

6. The establishment of programs with regard to underwriting or processing of applications, which are applied selectively as a means of discouraging an eligible person from pursuing an application with that insurer, when the insurer wishes to avoid insuring that eligible person but has no basis for refusing to do so under the Essential Insurance Act.

7. The practice by an insurer of threatening to or actually restricting or terminating an agent's binding authority to bind home insurance or automobile insurance because of the agent's refusal or failure to adhere to the insurer's practices which are themselves violations of the Essential Insurance Act.

8. Practices of insurers with respect to the compensation of agents which have as a principal effect the provision of inducements or incentives for the agent to adhere to insurer practices which are themselves violations of the Essential Insurance Act or to avoid performance of an agent's duties under that act.