As noted, a key aspect of a healthy insurance industry is the ability to correctly forecast the probability of an accident as well as the loss associated with an accident. Eliminating the requirement for purchasing unlimited PIP coverage will allow insurance companies to better estimate the loss from an accident. In addition, insurance companies should be allowed to use the best models available for estimating the probability of an accident.
The Michigan legislature should not restrict the ability of companies to use the risk-management and underwriting tools they choose. There are more than 100 insurance companies competing for business in Michigan. They have every incentive to use those variables that are most likely to predict the chance of an accident. Using variables that are not accurate will result in underwriting losses that will drive the company out of business. It is not possible for a legislative body to know which variables will be successful and which are not, and it has no incentive to get it right.
If lawmakers are concerned about the cost of premiums for certain subsets of the population, particularly low-income persons, they should not attempt to create an artificial subsidy for all drivers by restricting the ability of insurers to properly price premiums, and instead focus only on how to bring down premiums for that particular subset of the population.