Thanks in part to the hard work of some organizations and advocacy groups, bad faith legislation designed to protect insurance policyholders was introduced in the state legislature to bring Michigan in line with the rest of the country.
The Michigan Insurance Policyholder Bill of Rights (SB 329 and HB 4681) would impose financial penalties on insurance companies that engage in fraud by denying or delaying payment of claims without reasonable cause. This legislation will be a vital first step to undoing some of the harm done to Michigan policyholders. This will deter fraudulent behavior and incentivize insurance companies to do what they should have been doing all along: treat customers fairly and meet their obligations.
In one of the least surprising developments, insurance companies are using scare tactics about higher rates to repel bills. They argue that Michigan policyholders will have to pay more if they want their insurance company to properly handle their claims.
The reality, however, is that any insurance company that tells you that premiums will increase if bad faith legislation is passed is signaling that they never intended to give your claim a fair hearing in the first place. Michigan is one of only eight states that does not have any bad faith protection for its citizens.
This is the same flawed and dishonest argument that was used to pass controversial changes to No-Fault insurance. The claim that the proposed laws will inevitably lead to higher rates is not just factually incorrect and unsupported by logic or history, it is based on the illogical premise that lower rates require almost no oversight. Even more unfortunate, this argument is a calculated attempt to scare Michiganders into taking a stand against the very legislation that would protect them from fraudulent insurance practices.
But the simple fact is this: Michigan’s pending Insurance Policyholder Bill of Rights is aimed at protecting consumers from unethical behavior by insurance providers. Unfair practices, which are intentionally dishonest acts or deceptive behavior, are all too common for insurance companies in Michigan. But the reality is that insurance companies operating in good faith should never have to raise their premiums to compensate for lawsuits and legal costs incurred by other insurers engaged in wrongful conduct.
There’s a reason the vast majority of states across the country have enacted similar consumer protections. This legislation would correct a system where businesses and individuals who commit insurance fraud can be charged with a crime, but insurance companies face no significant legal or financial consequences for fraud.
This “higher premium” scare tactic just confirms the fact that insurance companies are currently acting in bad faith and expect more lawsuits. Michigan policyholders already pay significantly higher car insurance rates (81% more than the national average, according to a MarketWatch study), and insurance is a billion-dollar industry that can easily pay out all legitimate claims and still makes a stable profit.
Bad faith laws are a critical way to introduce meaningful consequences into a system that has long been without consequences for unethical operators. But ethical insurance companies should welcome bad faith laws because they promote fair competition in the marketplace.
Ultimately, these bills are not about punishment, but about deterrence: protecting Michigan citizens and businesses and promoting fair insurance practices.
Nick Andrews is a partner in the Bloomfield Hills firm of Liss & Andrews.
Nick Andrews is a partner in the Bloomfield Hills firm of Liss & Andrews.
