Michigan passed the Essential Insurance Act of 1979 in response to an insurance market that made it hard for state residents to find affordable homeowners or automobile insurance. A court ruling on the state's no-fault insurance laws gave the issue a push by requiring the state change its insurance laws.
In 1977, the Michigan Insurance Bureau reported to the state governor that many drivers had trouble finding affordable auto insurance. Insurers competed for the best drivers and refused to insure higher-risk ones. Industry financial analysis, the bureau said, was too primitive to assess risk accurately or set prices fairly, so insurers often set rates and rejected customers arbitrarily. Drivers, and also homeowners, ended up buying from a limited number of insurers who offered minimal coverage for high rates.
The Shavers Case
The state legislature chose not to act on the bureau's report. In 1978, however, the Michigan Supreme Court ruled that state laws mandating drivers take out no-fault insurance were unconstitutional. Despite state insurance regulations, the court said, drivers often could not find quality insurance at a reasonable rate, so the law often forced them to take out policies even if the rates were unreasonable. The court gave the state 18 months to come up with a better insurance system.
The Essential Insurance Act requires Michigan insurers -- except a handful of companies exempt from the act -- maintain written underwriting standards and accept any customer who meets them. The state no longer gives prior approval to insurance rates, but rates must be based on risk, not set arbitrarily. The law limits the number of territorial base rates -- rates set based on where you live -- to make it harder to set high rates for residents of particular areas. The state repealed that restriction in 1996.
Under the Essential Insurance Act, insurers must provide customers with the lowest premium available for the insurance the customer wants. Insurers must also provide customers with information about how the rates were set; if a customer wants to appeal an agent's decision, the law grants them an interview with a manager who has the authority -- but not the obligation -- to overrule the agent. If the company turns a customer down, it must provide a written statement why.