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The Detroit News
Dec 03, 2003
by Mark Hornbeck, Karen Bouffard & Ronald J. Hansen
Sting of high insurance spurs probe;
Granholm seeks reasons for soaring home, auto ratesLANSING, MI -- Gov. Jennifer Granholm on Tuesday ordered the most comprehensive investigation of the insurance industry in 20 years after receiving consumer complaints about double- and triple-digit auto and homeowner rate increases.
But her administration offered no immediate relief, other than to recommend that people shop diligently for lower rates. And experts questioned the state's ability to resolve a problem that has frustrated consumers and lawmakers nationwide for at least three years.
Insurance industry officials said the fast-rising rates are justified because they've been paying dramatically higher claims. They said the six-month investigation will prove the industry has done nothing wrong.
But that's little consolation to people like Roy Raymo, an 80-year-old retiree living in Detroit's Brightmoor neighborhood, who says he has never made a homeowner's insurance claim yet has been billed for dramatically higher premiums.
His homeowner's insurance with the Hartford Financial Services Group Inc. has risen from $297 in 2001 to $611, he said. His $522 fixed monthly income barely covers his insurance costs. Raymo also pays $711 in car insurance and $55 monthly in life insurance as well.
"Where's all this money going to?" he asked. "My neighbor can't afford any insurance. I have to pay using my credit card."
Livonia resident Zita Fitzpatrick thinks she pays too much to insure both her 1995 Ford Thunderbird and her 1,000-square-foot house. She's glad government officials are going to investigate whether the rates are fair.
"In all my years of driving, I have had one ticket, for a rolling stop sign 30 years ago, and I'm paying over $800 per year," Fitzpatrick said. "My house insurance with the $500 deductible is $422. I went to the $500 deductible because I couldn't believe what they wanted for the $250.
"Am I being unreasonable? I don't know. I think that's high."
Granholm cited a 73-year-old South Lyon woman who saw her annual $1,700 home insurance premium rise to $10,647 this year. State Insurance Commissioner Linda Watters said a homeowner in Detroit saw house insurance rates skyrocket from $860 to $15,000.
"This is astonishing," the governor said. "With rates on the rise again, we felt it was important to ask why rates are going up so rapidly."
"Certainly, the insurance commissioner has the authority and we have nothing to hide," replied Doug Cruce, executive director of the Insurance Institute of Michigan, an association of insurance companies.
Insurers pay out more
There's little doubt that insurance premiums in Michigan and across the nation have been rising rapidly. The industry says its costs are rising just as fast. Homes and cars are steadily more expensive to repair, medical costs and jury verdicts are climbing, and there are costly new categories of lawsuits including such things as black mold, insurers say.
"State Farm rates are reflective of the cost of doing business in Michigan," said Joe Johnson, a spokesman for the company's Great Lakes region. "In the last few years, we've seen sharp increases in the cost to repair cars, in construction costs and medical expenses."
But critics say its no coincidence that rates accelerated when the stock market turned down following the buoyant decade of the 1990s. During that time, critics say, insurers made so much money in stock investments they weren't forced to raise rates in line with claims, requiring a massive adjustment over the past three years.
Over the past seven years, auto insurance rate increases at the top 20 companies operating in Michigan have ranged from 42 percent in Kalamazoo and Traverse City and as much as 128 percent in north central Detroit.
In 1996, annual insurance on an $87,000 house cost as little as $213 in Ypsilanti and as much as $781 in Detroit. This year, the cost for similar coverage on a $100,000 house ranges from $383 in Cheboygan to $4,476 in Detroit, the state report shows.
The state will require that all licensed insurance providers furnish data that allows the state to check rates against actual losses to determine whether recent increases in premiums are excessive. The information will be far more detailed than that provided in a routine rate filing case, officials said.
The rate-setting data will be specific to region, enabling the state to review whether companies are over-charging in some geographic areas, a practice sometimes called redlining.
Granholm singled out Evelyn Louis, who was paying $2,600 a year for auto insurance in Flint. When she moved to Detroit last month, Louis got a $4,800 quote for the same annual coverage.
"I actually cried when I heard the number," said Louis, a 36-year-old hospital shuttle driver. "I can't afford that. Right now, I'm going without a car partly because of the insurance rates."
State can do little
Unless fraud is discovered, the state's remedies are limited. Officials can hold hearings and attempt to coax companies to reduce their rates. If rates are found to be excessive under state consumer laws and companies refuse to cut premiums, their licenses can be revoked, Insurance Commissioner Watters said. The state can't levy fines, but Granholm said she may push for legislation if it's determined that the range of sanctions is too limited.
Cruce advised against rewriting public policy based on few rate-increase examples.
"No laws have been broken. We're talking about pricing a product here," he said. "Anybody looking at the numbers will draw the same conclusions the companies have drawn."
But Rick Gamber, who heads the Michigan Consumer Federation, said it's about time the state looked into insurance premium increases.
"The public has been complaining for two years about double-digit increases. It's great somebody is finally paying attention and getting to the bottom of it," Gamber said.
Raymo, the Detroit retiree, expects little from the state's investigation. "I don't think they will do anything. (Granholm) is blowing wind like everyone else."
Cheryl Bord, of Plymouth, also is skeptical. She wonders how the insurance commissioner plans to decide whether insurance companies are fair or not. She pays $1,300 per year for insurance on her family's two 2004 Hondas, and $900 per year to insure their four-bedroom home -- and she admits she really can't judge whether that's too much or not.
"How will they assess if it's fair? How do they determine whether replacement costs translate into what they're charging us. (Investigating insurance companies) sounds like a good idea, but I'd be interested in learning how they propose to determine that," Bord said.
Learn more about insurance rates in Michigan and learn how to get the best deal for yourself at www.detnews.com/metro.
Help for consumers
- Gov. Jennifer Granholm announced a new consumer's guide on insurance rates offering tips on securing the lowest-cost coverage. She also announced an on-line form for lodging complaints about rate increases. Both can be found at www.michigan.gov/ofis.
- The Insurance Information Institute, an industry trade group, also offers advice for consumers on obtaining cost-effective coverage at www.iii.org.
- Advice from a consumer's advocacy group, the Foundation for Taxpayer and Consumer Rights, is at www.consumerwatchdog.org.
Rates on rise
Increases in average auto insurance premiums by Michigan region, 1995-2003:
North Central Detroit: 126 percent
Northeast Detroit: 125
Southwest Detroit: 122
Northwest Detroit: 116
South Central Detroit: 113
Grand Rapids: 51
Traverse City: 42
HOME COVERAGE Premiums charged by State Farm on a single-family home insured for $100,000 in select cities:
Warren $277 $814
Detroit $539 $1,813
Lansing $319 $540
Flint $446 $694
Traverse City $277 $600
Source: Michigan Office of Financial and Insurance Services
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