June 13, 2005
Plan Looks for Rate Reductions for Urban Residents
LANSING - Governor Jennifer M. Granholm, Office of Financial and Insurance Services (OFIS) Commissioner Linda A. Watters, and Office of Community and Faith-Based Initiatives Director Greg Roberts today announced a new initiative to make home and auto insurance more affordable for good drivers living in urban areas. Granholm said her Administration will help community groups and faith-based organizations create purchasing groups that can negotiate directly with insurance companies for lower rates to garner significant savings for consumers in urban areas who voluntarily participate.
"Ensuring that citizens have access to affordable insurance no matter where they live is a critical step in making sure they can afford to live in our cities," said Granholm. "We are asking insurance companies to look first at driving records - not street addresses - when they offer customer's rates."
Through the initiative, community groups, churches and neighborhood organizations will team up to create groups of potential customers who have good insurance claims history. The lower risk presented by purchasing group members should result in lower insurance rates than would otherwise be possible.
OFIS has sent out a Request for Information (RFI) to insurance companies designed to identify innovative ways that companies could offer insurance by grouping lower-risk individuals together (see attached).
"By bringing together insurance companies with lower-risk insurance policyholders, everyone wins," said Watters. "The insurance companies get access to large groups of responsible drivers and homeowners who file fewer claims, and the consumers get lower rates that rely more on their behavior rather than on where they live."
The Governor's Office of Community and Faith-Based Initiatives will work with local clergy, neighborhood associations, and other groups to find people who fit the qualifications and form the purchasing groups. The Governor applauded the work of local clergy and elected officials who have worked closely with her office to find creative solutions to the cost of insurance.
"This is the first time the state has made a concerted effort to reduce the costs of insurance in our urban areas," said Granholm. "Ensuring that people can afford to live in our cities is a critical part of growing our cities and growing our economy. I'm grateful for the hard work and commitment of the Detroit legislative delegation in making this happen."
Granholm has worked closely with the Legislative Black Caucus to bring down skyrocketing insurance rates in our cities. This proposal is in line with their efforts to make insurance more affordable.
Through this initiative, purchasing groups would set high standards for people who belong to the member organizations. Those standards could include: a better-than-average driving record, car garaged at night, and home inspection standards.
"Unaffordable insurance rates are driving people out of our cities, regardless of whether they have filed claims," Watters said. "When someone has to pay thousands of dollars more just because they live in Detroit or Flint, something is wrong. Purchasing groups will encourage people to be responsible in their driving and home protection by rewarding them with lower rates."
Current Michigan law allows insurers to write auto and home insurance for specific groups of policyholders at rates that are lower than what they charge to individual policyholders. All group rates are generally lower because it is less expensive to market insurance to one entire group of people than it is to seek out each of those people individually. Rates can also be significantly lower for groups with better than average loss experience, in other words, groups who are expected to file fewer and/or less expensive claims.
The RFI is attached, and contains the questions posed to the insurance companies. RFIs are due on August 15, 2005. The information submitted from the RFI will be for analysis purposes only and may or may not be used to develop a Request for Proposal (RFP). If an RFP is developed, it will be done by the buying group, not by the State of Michigan.
For more information, interested parties should go to the Office of Community and Faith-Based Initiatives website at http://www.michigan.gov/outreach.
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REQUEST for INFORMATION: INSURANCE PURCHASING GROUP
I. PROJECT REQUEST
The Office of Financial and Insurance Services (OFIS) is exploring the feasibility of a purchasing group for auto and home insurance sponsored by neighborhood associations, church groups, block clubs, etc that could offer a program of auto and/or home insurance in urban areas at premiums that are below what people are paying today.
OFIS is making a Request for Information (RFI) to seek information to better understand the group insurance options available in urban insurance markets and help determine if more affordable auto and home insurance can be made available in urban areas through a buying group. The information submitted will be for analysis purposes only and may or may not be used to develop a Request for Proposal (RFP). If an RFP is developed, it will be done by the buying group, not by the State of Michigan.
No vendor will be selected, pre-qualified or exempted based on the participation in this RFI. The State of Michigan is not liable for any costs incurred by vendors in developing responses for this RFI. No party is bound by the information provided in response to this RFI. The responses will not be "scored" or formally evaluated in anyway. Nevertheless, because of the strategic importance of this initiative, we would strongly encourage the insurance industry to participate.
II. BACKGROUND
Few issues have occupied the Michigan public policy arena as persistently as those surrounding the availability of affordable home and auto insurance. While Michigan laws ensure virtually universal access to home and auto insurance coverage, many Michigan citizens-particularly those living in urban cities and surrounding suburbs-have questioned the value of guaranteed access to insurance that they cannot afford.
While in most geographic territories, rates are not unreasonably high in relation to covered losses, premiums may still be unaffordable from a consumer's perspective - particularly in urban areas. Based on the foregoing, it is very clear that in many parts of the state, competition isn't doing enough for consumers. Insurers are not competing in a manner that actually makes insurance more affordable in these areas. Consumers are not adequately educated on specific actions that they can take to reduce their home and automobile insurance premiums.
III. QUESTIONS AND ANSWERS REQUESTED
OFIS is requesting the following information from all interested parties:
OFIS requests information to create a purchasing group with the following objectives:
To be sponsored by neighborhood associations, church groups, block clubs, etc.
To offer more affordable home and/or auto insurance premiums that are based more on the actual and anticipated claims experience of the group members and less on where those members live.
To have high standards for people who belong to the member organizations to be able to buy insurance through the purchasing group, e.g. better than average driving record, car garaged at night, home inspection standards, so that premiums through the purchasing group can be significantly lower for group members based on expected better than average loss experience.
In addition to the expected savings from better than average claim experience, To offer home and/or auto insurance premiums that also reflect the expense savings associated with marketing insurance to one entire group of people, rather than having to seek out each of those people individually.
Based on an understanding of the project request, background, and objectives, OFIS is requesting the following information from all interested parties.
1) Sponsoring arrangements
Describe in detail the sponsoring arrangements for the purchasing group, e.g. whether it would be a true group, with a master policy and certificates, or an affinity or franchise group, with individual policies.
2) Experience Rating
Describe in detail the approach, including rate classifications and discounts, that would be used to set rates for the purchasing group, including the minimum number of group members and the minimum take-up rate expected or required to support the rates. Describe each classification factor, including each discount, in detail, including its expected effect on overall premiums for the group.
3) Eligibility Standards
Describe in detail the eligibility standards that the purchasing group should set for members so that the group can be expected to have loss experience that will support rates that, after also factoring in expected expense savings, are up to 25% below those currently available. Describe member education and loss prevention programs that the group could undertake to continue to improve its claims experience.
4) Group Administration and Marketing
Describe in detail the arrangements for marketing to and enrolling eligible group members that will support premiums that are at least 10% lower due to expense savings. Include any savings that can be achieved by having the group sponsor perform some administrative functions.
IV. CONCLUSIONS SUBMITTALS AND REMINDERS
CONCLUSIONS AND REMINDERS
The responses to this document are exclusively intended to assist the State in understanding the feasibility of a group purchasing solution for urban insurance problems. By analyzing the priorities and requirements articulated in the body, this document will allow organizations with a profound understanding of the auto and home insurance market to assist the State in shaping its final product.
After the review of the submitted RFI responses, organizations may be invited to discuss their responses to the RFI document with OFIS They may prepare formal presentations in advance of this meeting; however, they must be highly relevant and focused and are by no means a requirement. We do, however, invite respondents to provide additional background or promotional materials at the conclusion of our discussion.
Finally, please understand that any participation in this discussion is not mandatory and will not affect an organization's ability to respond to the eventual solicitation. The discussions will not be "scored" or formally evaluated in any way. In addition, organizations that are not asked to participate in these initial sessions but can meet the specific requirements outlined in a final work statement will not be excluded from the procurement process.
Questions concerning this RFI can be submitted, in writing through Monday,
August 1, 2005 to
ofisrfi@michigan.gov.
Please note that all questions and answers will be posted anonymously on the OFIS website.
RFI Submittal
RFI's are due on August 15, 2005 and may be submitted either via email, through the U.S Postal Service, or via contract carrier, courier delivery or personal delivery.
If your submission is in hard copy via the U.S. Postal Service, contract carrier, courier delivery or personal delivery, please include an electronic copy on CD-ROM along with your paper submission.
RFI's submitted by CONTRACT CARRIER, COURIER DELIVERY, or PERSONAL DELIVERY, should be addressed to:
Frances Wallace, OFIS
3rd Floor, Ottawa Building
611 West Ottawa
Lansing, MI 48933
RFIs submitted through the US. POSTAL SERVICE should be addressed as follows:
Frances Wallace, OFIS
P.O. Box 30220
Lansing, Michigan 48909
