Yesterday Commerce Commissioner Mike Rothman announced a sweeping proposal to completely revise our state's auto insurance rating system. The Minnesota Fair Auto Insurance Act was heard in the Senate Commerce Committee where Commissioner Rothman made the case for this sweeping legislation.
According to the Commissioner, auto insurance rating has gone beyond common sense. Insurers can crunch all types of individual data upon which they base rates, most of which has nothing to do with how a person drives an automobile. Rothman believes that auto insurance rates are based more on who you are than how you drive. Auto insurance rates are rising steadily. The price index for auto insurance rose 5.1% while the broad CPI rose only 1 percent.
The Commissioner also challenged a rating practice called "price optimization" that allows insures to score consumers based entirely upon their social and economic status and other factors. Under price optimization some consumers, especially seniors, are more likely to pay higher insurance rates because data suggests that they are likely to accept higher premiums in order to stay with their current carrier. Price optimization is currently illegal, but the Department is not sure whether it is being employed by insurers under our "file and use" rating system. Under the Fair Auto Insurance Act, all auto insurance rates must be approved by the Commissioner prior to their use.
The bill would require a 20% automatic premium reduction effective retroactively to January 1, 2016. Rates could only be increased during 2016 if the commissioner believes a company faces insolvency. Yes, you are reading this correctly.
In addition, the bill mandates a good driver premium reduction of an additional 20 percent. To gain this reduction a person must have:
- a valid driver's license for the previous three years.
- not received a chargeable accident where payment has exceeded $500 or a moving violation for the previous three years, and
- not received a serious violation related to driving in the previous 10 years.
The Fair Auto Insurance Act would also dramatically change how rates are determined in Minnesota. In the future, only the following factors may be employed in decreasing order of importance.
- The insured's driving record
- The number of miles driven by the insured annually
- The number of years the insured has driven
The use of other factors, such as credit scoring, would be considered unfair discrimination. No insurer will be able to refuse to renew an automobile insurance policy on the basis of a claim submitted during the experience period regardless of the dollar amount of the claim.
The Minnesota Insurance Federation, was joined by the Property Casualty Insurance Association, the American Insurance Association and the National Association of Mutual Insurance Companies in opposing the proposal, but were unable to testify as the committee ran out of time.
This proposal will likely be a key topic of discussion at this year's Insurance Day at the Capitol on Wednesday, March 30. You can register by clicking the link below. Registration ends this Friday.