Michigan’s Insurance Industry: New Directions

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With the coming of the administration of Republican Governor John Engler in 1991, Michigan’s history of government interference in the insurance industry took a distinct change in direction. While there has not been a raft of new legislation or reduction in taxes on the insurance industry, there has been a change in attitude toward the industry by the Insurance Bureau. Rather than seeing the industry as a tool for government policy, the Bureau now sees it as a key part of the market economy, ensuring that resources are allocated efficiently.

Government regulatory agencies often become dominated by persons who either believe in regulation by government or find regulation to their advantage. Governor Engler’s appointment of D. Joseph Olson, an outspoken advocate of insurance deregulation (and deregulation in general), as Commissioner of Insurance sent a strong signal that market principles would now serve as the basis for the state’s oversight of the industry. Through aggressive using of the tools of the Commissioner and by clearly articulating the limited role of government in the market process, Olson was able to advance significantly the process of deregulation during his tenure from April 1995 to August 1997.

The primary tools he used were advocacy of legislation that reduces government interference in the market, use of the formal rule-making process to clarify legislation, issuance of orders where the commissioner is granted authority by the legislature, and informal administrative processes, such as bulletins, guidelines, and internal memoranda. In addition, strong leadership by a commissioner with a vision transformed the attitude of the bureaucracy and turned the tide of overreaching regulation.

During the Engler administration, legislation to significantly modify the onerous price-fixing regulations of the Essential Insurance Act was enacted, as well as bills that limited non-economic damages for pain and suffering and corrected onerous federal court decisions expanding federal intrusion into the McCarran-Ferguson arena. Taxation of insurance companies ceased being a constant threat posed all the administration, and insurance companies actually received a small tax cut as part of the general reduction in business taxes. Commissioner Olson made extensive use of his power over rulings, filings, and bulletins to reduce government intervention in the insurance market and to reduce compliance costs of insurance companies. Commissioner Olson also worked to thwart the efforts of the National Association of Insurance Commissioners to nationalize a philosophy of extensive regulation of insurance markets.

Other states may learn specific lessions from the Michigan experience, such as the use of the commissioner’s power to reduce or eliminate rate filings. The primary lesson, however, is that ideas have consequences. If legislators and administration officials have the courage of their convictions and can articulate the benefits of the market process over central planning, then the tide can be turned in favor of free market principles.