How are rates developed?

Michigan's auto insurance is regulated by state law on a competitive basis. This means that rates cannot be considered excessively high so long as there is competition among companies. Insurers are prohibited from communicating with other insurers about the rates they are setting.

There are two types of auto policies: group and non-group (or individual). A group policy is one offered to a group or association's members. Coverage provided by group and non-group policies are generally similar. However, different companies offer different coverage options in their policies and a group policy may qualify you for discounts to save money.

State law sets forth the factors companies use when setting their auto rates. More rating factors are allowed for group policies than for non-group policies as long as they are specified in the company’s underwriting rules and applied uniformly and consistently to all of the company’s policyholders. Some of the factors that companies can use in setting rates include the type of vehicle you own, your driving record, your age or length of driving experience, daily or weekly commuting mileage, and number of vehicles insured or number of licensed drivers in the household.

Companies use the premium they collect to pay claims. In setting premiums, companies must estimate how much money they will pay for injuries related to accidents and for the repair or replacement of vehicles. Michigan law does not provide auto insurance companies the ability to negotiate discounted services with health providers. In addition, it is difficult to project future medical costs because auto insurers could pay benefits for a seriously injured person for the rest of their life. The high cost of medical expenses and the unlimited nature of Michigan no-fault benefits are some of the reasons premiums will increase.

Insurers writing non-group policies are required at least annually to provide consumers the opportunity to request a description of the rating classifications they use in setting rates. This notification must occur with the notice of the renewal of the insurance policy. The insurers also must provide consumers with a process to use if the consumer believes the premium being charged is incorrect. Under this process, any consumer believing the premium is incorrect based upon the rating classifications can ask for a review of the rate by the company. DIFS can review the rate if the consumer believes it still is incorrect after the company review.