PIP rate-setting: work with experienced attorney to reduce potential liability

For insurance companies, determining insurance rates is a important, though potentially tricky, matter. On the one hand, insurance companies need to charge rates that ensure they cover costs and reap some profit. On the other hand, there is also the importance of maintaining one’s customer base, and also complying with state law.

When it comes to setting insurance rates, Michigan’s no-fault insurance system has been characterized as a “file and use” system. Under this system, insurance companies file their proposed rates with the Department of Insurance and Financial Services. The Michigan Insurance Commissioner then has the opportunity to object to “excessive” rates. If no such objection is made, the insurance company can go ahead and charge those rates to consumers. 

Some have criticized the system, arguing that there has never been a declaration that insurance rates are excessive because the Insurance Code defines excessive so vaguely: the language used is “unreasonably high for the insurance coverage provided” and there is not a “reasonable degree of competition.” In other words, the argument goes, the definition is somewhat vague.

Another aspect of the law is that insurance companies are supposed to “appropriately” reduce premiums for uncoordinated no-fault policies. No fault benefits are coordinated when they are coordinated with benefits the insurance carrier receives from other insurance policies, while uncoordinated benefits are those which are not so coordinated. The latter are, therefore, sometimes called full benefits. Critics argue that the Insurance Commissioner does not have any defined methodology for making a determination about appropriate reductions in premiums for coordinated no-fault policies.

What does all this mean for insurance companies? For one thing, the public will likely continue to scrutinize insurance carriers in insurance rate-setting. Whether or not this translates into changes in policy remains to be seen. It must be remembered, though, that insurance companies are indeed subject to limitations in setting rates and that they should be cautious in this area to ensure they remain in compliance with state law. Working with experienced legal counsel can help ensure an insurance company’s has proper guidance in minimizing its liabilities in this area.