Insurers Battle Michigan Discretionary Clause Ban

By Arthur D. Postal

July 18, 2006 at 01:04 PM

Share & Print

Insurance groups are attacking a proposed rule in Michigan that would bar use of discretionary clauses in all lines of consumer and personal insurance policies.

The Michigan Office of Financial and Insurance Services will hold a hearing on the proposal Wednesday.

At least 6 groups say they will appear at the hearing, and 3 have submitted written versions of their comments.

Regulators in other states also have been trying to ban or limit use of discretionary clauses.

California regulators have been trying to ban use of discretionary clauses in disability insurance contracts, and some states already have laws that ban the use of discretionary clauses in health insurance contracts.

One group that plans to participate in the Michigan hearing, America's Health Insurance Plans, Washington, is arguing in the advance version of its testimony that the proposed ban on discretionary clauses "can only hurt the consumers Michigan is trying to protect."

The proposed Michigan rule "will inevitably increase the cost of coverage for Michigan policyholders, and may force employers to limit or even cancel their benefit plans," AHIP says.

AHIP predicts banning discretionary clauses would hurt small businesses by increasing insurers' administrative costs and driving up rates.

AHIP also argues that the Employee Retirement Income Security Act prohibits states from banning discretionary clauses.

NOT FOR REPRINT