LANSING--The state Senate today rejected a proposal that would have increased auto insurance rates—some by nearly 50 percent—for three out of four Michigan drivers. 

 

Senate Bill 166 would have prohibited territorial insurance rating, which considers geographically based risk factors when setting insurance premiums.

 

Sen. Jud Gilbert, who voted against the bill, compared territorial rating to the way insurance companies assess the risks of flooding.

 

“If you live in an area with a higher likelihood of flooding, you will pay more in homeowners insurance than someone living in a low-flood area. In the same way, auto claims in high-risk areas are more prevalent and costlier, so drivers pay more,” said Gilbert, R-Algonac. “If this proposal had passed, drivers in low-risk areas would subsidize drivers elsewhere, and that is simply not fair.”

 

Under territorial rating, the factors used to set insurance premiums include traffic density, claiming behavior, auto theft rates, the percentage of uninsured motorists, and others. Because risk is higher in certain areas than in others, rates are higher in certain areas and lower in others.

 

Gilbert said that if territorial rating were prohibited, some residents would see only slight rate increases. But most others would be hit with significantly higher increases, such as a 37 percent rise in Jackson and a 46 percent jump in Lansing.

 

The auto insurance industry in Michigan would neither gain nor lose money if territorial rating were eliminated; the overall claim losses and total premiums collected would remain the same.