DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES  
INSURANCE BUREAU  
CASUALTY INSURANCE RATES  
(By authority conferred on the commissioner of insurance by sections 210 and 2484 of  
Act No. 218 of the Public Acts of 1956, as amended, being SS500.210 and 500.2484 of the  
Michigan Compiled Laws)  
R 500.1201 Definitions.  
Rule 1. As used in these rules:  
(a) "Classification" means a grouping of individuals or risk on the basis of 1 or more  
characteristics for purposes of measuring and rating differences in anticipated losses or  
expenses, or both. For purposes of these rules, a classification shall not include a grouping of  
individuals or risks solely for statistical data gathering purposes.  
(b) "Code" means Act No. 2l8 of the Public Acts of 1956, as amended, being S500.100  
et seq. of the Michigan Compiled Laws, and known as the insurance code of 1956.  
(c) "Commissioner" means the Michigan commissioner of insurance and the designees of  
the commissioner.  
(d) "Loss portion" means that portion of a rate which is attributable to provisions for  
incurred losses and allocated loss adjustment expenses.  
(e) "Loss ratio" means, for purposes of R 500.1207(4)(e), any of the following ratios for  
a specified time period, as appropriate for the context of evaluation:  
(i) The ratio of actual incurred losses and allocated loss adjustment expenses to total  
earned premiums at collected rate levels.  
(ii) The ratio of actual incurred losses and allocated loss adjustment expenses to total  
earned premiums at current rate levels.  
(iii) The ratio of reasonably anticipated incurred losses and allocated loss adjustment  
expenses to total estimated earned premiums at proposed rate levels.  
(f) "Private passenger automobile insurance" means insurance for private passenger  
automobiles which provides any of the following:  
(i) Security required pursuant to section 3101 of the code.  
(ii) Personal protection insurance, property protection insurance, or residual liability  
insurance for amounts in excess of the amounts required under chapter 31 of the code.  
(iii) Insurance customarily known as collision, comprehensive, and uninsured motorist  
insurance.  
(g) "Private residential property insurance" means insurance for an individual's  
residence, including insurance for an owner-occupied condominium unit, insurance for  
owner-occupied residential dwellings containing 4 or fewer apartments or condominium units,  
and insurance for a tenant of a room, an apartment, or a house, provided by a Michigan  
standard policy as set forth in section 2832 of the code and, when contained in or indorsed  
to a Michigan standard policy providing insurance for an individual's residence, other  
insurance intended primarily to insure residential property, obligations, and liabilities.  
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Private residential property insurance shall not include insurance intended to insure  
commercial, industrial, professional, or business property, obligations, or liabilities.  
(h) "Rate differential" means either the ratio of rates for any 2 rating cells or the absolute  
difference in rates for any 2 rating cells, whichever is applicable for a particular rating  
system.  
(i) "Rating cell" means a group of individuals or risks for which a single rate is  
determined when 2 or more rating classifications are combined to define a population of  
individuals or risks for rating purposes.  
(j) "Relativity" means either the ratio of rates for any 2 rating classifications or the  
absolute difference in rates for any 2 rating classifications, whichever is applicable for a  
particular rating system.  
(k) "Uncertainty of loss" means a measure of the nature and the extent of the variability of  
actual losses for a group of individuals or risks from the mean anticipated loss for the group  
and includes other similar measures of risk.  
(l) "Underwriting" means the offer or refusal to insure, the offer or refusal to continue to  
insure, or the limitation of the amount of coverage available to an individual, risk, or class of  
individuals or risks.  
History: 1980 AACS.  
R 500.1202 Applicability.  
Rule 2. These rules apply to a person who is, or may hereafter be, subject to the  
jurisdiction of the commissioner of insurance.  
History: 1980 AACS.  
R 500.1203 Construction of rules.  
Rule 3. These rules shall be construed to prohibit insurers from establishing and  
using casualty insurance rates that are excessive, inadequate, or unfairly discriminatory and  
shall be construed to protect insurance consumers from the adverse consequences of such  
rates.  
History: 1980 AACS.  
R 500.1204 Reporting guidelines.  
Rule 4. Subject to section 2472 of the code, the commissioner may issue reasonable  
guidelines and procedures relating to the collection and reporting of data for purposes of  
evaluating rates and classifications or the extent and nature of competition. The guidelines  
and procedures shall provide for the option of using reasonable sampling techniques,  
when practicable, provided that any data thereby obtained are reportable in a uniform and  
consistent manner as may be required.  
History: 1980 AACS.  
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R 500.1205 Excessive rates.  
Rule 5. (1) For the purposes of section 2403(1)(d) of the code, a rate is unreasonably high  
for the insurance coverage provided if it is unreasonably high in relation to anticipated  
losses or expenses, or both, or to the uncertainty of loss for the insurance coverage provided.  
(2) A determination regarding the existence of a reasonable degree of competition, with  
respect to the classification, kind, or type of risks to which a rate is applicable, shall give due  
consideration to all of the following:  
(a) The relevant market for the coverage or the type of insurance to which the rate  
applies.  
(b) The number of insurers and the number of self-insurers actively engaged in writing  
or providing the coverage or type of insurance in the relevant market.  
(c) The distribution of rates and market shares for such insurers in the relevant market.  
Market shares may be measured either by premiums or exposures.  
(d) Past and prospective trends in the availability of coverage and coverage options for  
insurance of that type in the relevant market.  
(e) Profits attributable to insurance of that type in relation to the profitability of other  
types of insurance, to the uncertainty of loss for that and other types of insurance, and to the  
amount of capital and surplus funds available to support premium writings for that and  
other types of insurance.  
(f) The ability and potential for firms to enter and exit the relevant market and for  
financial capital and surplus funds to be allocated to and to be removed from the relevant  
market.  
History: 1980 AACS.  
R 500.1206 Inadequate rates.  
Rule 6. For purposes of section 2403(1)(d) of the code, both of the following  
provisions shall apply:  
(a) A rate is unreasonably low for the insurance coverage provided if it is unreasonably low  
in relation to anticipated losses or expenses, or both, or to the uncertainty of loss for the  
insurance coverage provided.  
(b) An applicant who is in good faith entitled to procure insurance through ordinary  
methods is an individual or risk in the population, defined by the classification to which the  
rate applies, that exhibits a willingness and a financial ability to purchase such insurance at  
the rate in question.  
History: 1980 AACS.  
R 500.1207 Unfairly discriminatory rates.  
Rule 7. (1) For purposes of section 2403(1)(d) of the code, a rate for a coverage is unfairly  
discriminatory in relation to another rate for the same coverage if the differential between  
the rates is not reasonably justified by differences in mean anticipated losses or expenses, or  
both, or by differences in the uncertainty of loss for the individuals or risks to which the rates  
apply. A reasonable justification shall be supported by a reasonable classification system, by  
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sound actuarial principles, and by actual and credible loss and expense statistics or, in the  
case of new coverages and classifications, by reasonably anticipated loss and expense  
experience.  
(2) A rate is not unfairly discriminatory because  
anticipated expenses for classifications of risks with similar anticipated losses or because  
it reflects differences in anticipated losses for classifications of risks with similar  
anticipated expenses.  
it  
reflects differences in  
(3) A reasonable classification system is a system designed to group individuals or  
risks with similar characteristics into rating classifications which are likely to identify  
significant differences in mean anticipated losses or expenses, or both, between the  
groups, as determined by sound actuarial principles and by actual and credible loss and  
expense statistics or, in the case of new coverages or classifications, by reasonably  
anticipated loss and expense experience.  
(4) Sound actuarial principles shall include, but not be limited to, all of the following  
principles:  
(a) That data used in developing classifications and rates are derived from the  
experience of a population or sample of risks that is sufficiently similar to the anticipated  
insured population so that the statistics thereby obtained can reasonably be expected to  
produce representative and reliable estimates of the anticipated loss and expense experience  
for the insured population and so that such statistics are calculated in a manner that is  
suitable to their intended use.  
(b) That a reasonable predictive relationship can be demonstrated to exist between a  
characteristic used in defining  
a
rating classification and anticipated losses, anticipated  
expenses, or the uncertainty of loss for the risks to which the classification applies.  
(c) That if rates for individual rating cells are calculated by means of arithmetic  
combinations of relativities for the classifications defining those cells, the relativities are  
combined in a manner that equitably reflects the anticipated loss and expense experience  
for those rating cells.  
(d) That sampling techniques used in developing classifications and in estimating loss  
and expense experience are suitable to their intended application.  
(e) That with regard to private passenger automobile insurance and private residential  
property insurance, rates for an insurance coverage provided are established in a manner that  
can reasonably be anticipated to produce loss ratios which are substantially uniform  
among the classifications, kinds, or types of individuals or risks to which the rates apply.  
Evaluation of loss ratios shall make appropriate adjustments for differences in deductibles and  
limits of liability among insureds, for expense provisions which are not allocated to  
premiums on a percentage-of-premium basis, and for differences in contingency factors  
among classifications and shall give due consideration to the credibility of experience for  
groupings of individuals or risks, to trends in past and prospective loss experience, and to  
historical patterns between projected and realized loss ratios. For purposes of this subrule,  
"substantially uniform" means the absence of significant variations among loss ratios.This  
subrule shall not be construed to prohibit the use of appropriate pure premium relativities to  
estimate or evaluate rate relativities.  
(5) Data of an insurer or rating organization used in calculating actual and credible loss  
statistics shall be of sufficient volume, or shall be combined in an appropriate manner with  
suitable data of sufficient volume, so that the statistics thereby calculated are reasonably  
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credible and can reasonably be anticipated to produce reliable estimates of anticipated loss  
and expense experience.  
(6) Data for reasonably anticipated experience used in calculating rates for new coverages  
and in establishing new classifications shall, to the extent possible, be based on actual  
experience for similar coverages and for groups of risks similar to the proposed classification  
and shall be of sufficient volume so that statistics thereby produced can reasonably be  
anticipated to produce reliable estimates of loss and expense experience.  
(7) Relevant external information, including general economic data and other indicators,  
may be given due consideration in evaluating or projecting loss and expense experience.  
History: 1980 AACS.  
R 500.1208 Expense provisions.  
Rule 8. (1) The expense portion of a rate shall, with regard to each category of expense,  
be examined and evaluated independently of the loss portion of the rate. Expenses shall not be  
presumed to change by the same percentage as losses are anticipated to change.  
(2) Predictions of future expense costs shall give due consideration to trends and changes  
in historical expense levels, in actual or reasonably allocated expenses incurred, and in  
external expense indices and indicators.  
History: 1980 AACS.  
R 500.1209 Expense allocation.  
Rule 9. (1) Expense provisions for each category of expenses shall be reasonably  
allocated among classifications in a manner that equitably reflects variations, if any, in the  
manner in which such expenses are anticipated to be incurred with respect to the groups of  
individuals or risks defined by those classifications. Expenses, other than allocated loss  
adjustment expenses, shall not be presumed  
classification relativities based on anticipated losses.  
to  
be  
incurred proportionally to  
(2) Expense provisions for premium taxes, if any, shall reflect the applicable premium  
tax rate.  
(3) Expense provisions for each other category of expenses shall be reasonably  
allocated among classifications based on losses, coverages, exposures, or other basis that  
equitably measures the variations, if any, in the manner in which such expenses are anticipated  
to be incurred with respect to the classifications. Expense allocation methods may include  
percentage-of-premium, uniform-per-coverage,  
appropriate and justified.  
uniform-per-exposure,  
or other basis, as  
History: 1980 AACS.  
R 500.1210 Exemptions from rules.  
Rule 10. (1) The commissioner may, by order, exempt a coverage or type of insurance  
from the application of 1 or more individual rules if he or she determines that application of  
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the rule or rules will be inappropriate based on the unique characteristics of the coverage or type  
of insurance.  
(2) An insurer or group of insurers may, in writing, request that the commissioner by  
order exempt a particular coverage or type of insurance from the application of 1 or more of  
these rules pursuant to subrule (1) of this rule. An insurer or group of insurers filing a request  
under this rule may, within 30 days after receiving written notice  
by  
the  
commissioner of a denial of the request, appeal to the commissioner. After an evidentiary  
hearing upon not less than 10 days' written notice to the appellant or appellants, the  
commissioner shall affirm or reverse the decision.  
History: 1980 AACS.  
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;