Linda Watters

Michigan Insurance Director of Insurance Linda Watters wants to make sure drivers in urban areas get a fair shake on the premiums they pay for auto and homeowners insurance. She has developed an initiative that would create a pool of up to 200,000 good drivers and responsible homeowners. Four insurance companies have told state officials that they want details on bidding to represent the pool. The companies are among more than 65 the state contacted about insuring residents.

Speaking with Insurance Journal‘s Andrew Simpson at the recent meeting of the National Association of Insurance Commis-sioners, Watters discussed the ins and outs of her controversial rating group proposal, along with details of her battles with the state legislature on credit scoring and more. Read on…

Insurance Journal: Commissioner Watters what are the priorities facing your department this year?
Linda Watters: We have been trying to identify ways to help Michigan consumers that are paying high, unaffordable rates on their auto and home insurance, particularly in large urban markets. We are exploring a new idea with the creation of the Michigan Purchasing Group Initiative, a program that is being piloted in two cities, Flint and Detroit.

With Michigan’s laws, we know that insurers are permitted to rate by territory, but we know that we have citizens in some territories that have great driving records, have never filed claims, who impeccably maintain their homes–but for where they live–they’re paying a higher rate. We have identified an opportunity for these consumers to be a part of purchasing groups through the religious communities and grassroots groups in these cities. These purchasing groups will be the mechanism for individuals to, in effect, have insurers bid on their business.

We are hoping this initiative will give citizens the opportunity to reduce their auto and homeowners insurance rates.

IJ: Will members of these community and faith-based groups be able to, as part of that group, essentially receive bids from insurance companies on their business and then be rated as a group?
Watters: Absolutely. When they are rated as a group, they will be able to receive discounts on their current premiums. We think it is a win-win for the insurers to identify a population of individuals who have low risk, and at the same time provide the consumers in that state with some rate relief. We see the disparities (in rates) across the state.

IJ: To be clear, this is not the state providing a coverage or a fund? The state is playing an intermediary role to help the community groups get organized so that they can get the bids from insurance companies?
Watters: Absolutely.

IJ: It’s still a private product, if you will?
Watters: It is absolutely driven by the private market.

IJ: Michigan has had its battles on insurers’ use of credit scoring in underwriting and rating. Could you give us an update on that issue and where it stands today?
Watters: Michigan promulgated a rule to ban use of credit scoring. We feel that credit scoring is illegal and unfair. The rule was promulgated, however, the very next day the insurance industry in Michigan took me to court and basically selected the county and the judge, and the judge ruled, obviously, in the favor of the industry. As it stands now, insurance companies are allowed to utilize credit scoring in ratemaking.

>b>IJ: Was this court action a temporary stay of your order?
Watters: Yes. I have appealed that ruling to the Michigan Court of Appeals and I am hopeful that the Court will rule this year.

IJ: Is this situation really a battle about whether you have the authority to issue such a ban?
Watters: Absolutely.

IJ: If the court rules that your ban is upheld, will credit scoring be banned in Michigan for all personal lines insurers?
Watters: That’s correct.

IJ: Commissioner, you recently issued an order to extend the time limit for consumers on the filing of auto insurance claims. Could you tell us about that?
Watters: The Michigan Supreme Court ruled in the Rory case that the commissioner has the authority to determine whether or not that time frame for filing auto claims is reasonable. We felt, quite frankly, that one year was certainly not long enough after an accident for a consumer to file a claim. I issued an order to extend that time frame to three years.

IJ: The court ruling was about whether you had the authority to declare something that, in your opinion, was unreasonable and extend the deadline for the filing of suits?
Watters: Absolutely.

IJ: Has that ruling been appealed?
Watters: It has not been appealed. I don’t foresee that it will be.

IJ: Many states around the country are feeling the effects of higher reinsurance prices for property insurers, and in some cases, companies are writing less insurance. Is Michigan feeling the impact of that situation?
Watters: We see rates in certain markets around the state of Michigan, both for auto and homeowners insurance, that are very, very unaffordable for a lot of our consumers. However, we have not felt the “bump” that you’re referring to–at least not yet .

IJ: What part of the brokers’ compensation and disclosure issue has been felt in Michigan, and if so, what has been the resolution?
Watters: To the extent that we have had the opportunity to sign on to multi-state settlements on the broker compensation issue, Michigan has done so. Agents that also act as financial advisers while they are selling insurance sometimes can create problems.

Overall, I would have to say that Michigan’s in-volvement on this issue, to date, has only been through our participation in the multi-state settlements.

IJ: Have you heard complaints from businesses or consumers on the issue of broker compensation and disclosure?
Watters: We have not had significant complaints at all in Michigan, relative to that issue. We have been working with our attorney general and with the NAIC on the multi-state settlements.

IJ: Speaking of the National Association of Insurance Commissioners, what key issues are you involved with in this organization?
Watters: Border issues are a priority since Michigan is a border state with our neighbor Canada.

I am a member of the North American Free Trade Agreement Working Group, as well as the International Committee Group, working along with my colleagues in Texas and California, to ensure that there is a continuous flow of commerce across those borders.

The other focus of these committees is how insurance needs are met for those traveling to and from the three countries.

IJ: Where does Michigan stand on the issue of the uninsured, whether uninsured motorist or uninsured health insurance customers?
Watters: I am delighted to report to you that our Governor, Grant Holm, has spearheaded a program to really look at the Massachusetts model for healthcare to try to form a universal health care model in Michigan. We do have a large number of uninsured consumers in Michigan, who just simply can’t afford to have health insurance. We hope to have our Michigan First Health Care Plan in place by early next year.

IJ: Would the program require that all consumers purchase insurance?
Watters: Absolutely. The goal of the governor and the administration is to ensure that every citizen in Michigan has the ability to have adequate health care.

Mandates in any case can be tricky to pass. In addition, the consumer has a responsibility to lead a healthy lifestyle. So part of this is plan would require that citizens maintain healthier lifestyles in order to gain access to the health care program.

IJ: Has this proposal passed the state legislature yet?
Watters: The proposal is in the system, but has not passed yet.