ESSENTIAL INSURANCE ACT DISCUSSION
The Essential Insurance Act (EIA) requires insurers to accept most applicants for automobile or home insurance, and it restricts the number and type of classifications insurers can use in order to develop rates. A large impetus for the EIA was a 1978 Michigan Supreme Court decision commonly referred to as the Shavers case. In Shavers, the court determined that Michigan’s no-fault law was unconstitutional because it lacked consumer protections and failed to ensure that coverage would be available at “fair and reasonable” rates. Accordingly, the legislature enacted the EIA in 1979 within the time frame required by the Shavers decision.
Although the EIA immediately addressed the constitutional problems outlined in Shavers, it also created some unintended consequences. Original EIA provisions required some lower-risk drivers and homeowners to subsidize higher-risk drivers and homeowners through artificially high premiums. Consumer dissatisfaction led to the repeal of so- called territorial rating restrictions that were in part responsible.
In its present form, the EIA still has its ‘take-all-comers’ provisions, restrictions on rating and underwriting classifications, requirements for detailed consumer disclosures, and dispute resolution mechanisms for aggrieved consumers.
In its present form, the EIA remains one of the most restrictive and complex regulatory systems in the country for automobile and home insurance. While many of the most egregious cost-shifting provisions have been amended or repealed, the EIA still severely restricts rating and underwriting flexibility – and therefore, consumer choice. In addition, the reputation of the EIA and the difficulty insurers have in conforming their systems to its unique provisions means fewer companies choose to do business in Michigan, limiting choice and the benefits of competition for Michigan’s insurance consumers.
- MCL 500. 2101 et seq.