Michigan Democrats want to alleviate some of the pain low-income drivers experience when they pay their car insurance premiums. On Monday, they announced a plan to create more governmental protections for low-income drivers by increasing regulations on auto insurance companies, including which criteria could be used to calculate a driver’s premium. While there can be little doubt that low-income people are suffering in today’s economy, not all aspects of the Democrats’ plan are advisable. The government should empower regulatory agencies that can force insurance companies to offer fair rates, rather than pass a bill completely revising, perhaps unwisely, the way rates are calculated.
According to the Detroit Free Press, the plan proposed by state Democrats would mandate that insurance companies offer cheaper auto insurance to low-income drivers with good driving records. The bill would also include regulations that prevent insurance companies from raising rates on drivers with good records and prohibit using education level, occupation and credit rating to determine drivers’ rates. And the state insurance commissioner would be given more freedom to check rate increases.
While reminders that Michigan’s economy is in trouble may be getting tiresome, they are still true. And low-income residents are the ones least able to weather the storm. With the auto industry in turmoil and a quick rebound unlikely, jobs will be scarce for the foreseeable future. Low-income people could be greatly benefitted by lower auto insurance premiums.
And some of the practices of insurance companies could be discriminatory. Looking at a driver’s level of education, profession and income aren’t necessarily fair ways of determining an individual’s likelihood of being involved in an accident.
But while low-income drivers can’t afford to pay more than everyone else, insurance companies shouldn’t necessarily be barred from making determinations about whether drivers will be able to pay if they are involved in an accident. The line between blatant discrimination and sound pricing policy may not be as clear-cut as the Democrats’ plan would have you believe. Indeed, it seems that the Democrats are trying to score easy political points and haven’t thought through all the ramifications of passing a law that micromanages the way insurance companies calculate premiums.
Instead, legislators should expand the ability of regulatory agencies to make those determinations. Regulators should be given a strong mandate to make sure that insurance premiums are being calculated fairly and that low-income drivers aren’t getting the short end of the stick. Such a mandate would be able to protect the less fortunate while making sure that insurance companies don’t pass the costs on to middle-class families.
The state government has a responsibility to protect lower-income groups during tough economic times. Keeping a closer eye on how much they pay in auto insurance is one way of doing that. But the Democrats’ plan should be carefully examined if it’s introduced to the legislature. Regulators may be able to do more to balance auto insurance rates than a complete reform package.