Michigan Democrats Push No-Fault Auto Insurance Reform Plan

A group of Michigan Democrats opposed to the governor’s no-fault reform plan are putting forth markedly different proposals to overhaul the state’s auto insurance system.

The reform package, to be introduced to the Legislature as several bills from a group of Detroit-based Democrats, was publicized at a press conference late last month as the “Detroit Democratic Auto No-Fault Package.”

Rather than see premium cuts by reducing coverage—which the Republican proposal attempts to do—the Democrats will seek reform through a restructuring of the Michigan Catastrophic Claims Association (MCCA) and additional regulation of insurance companies.

“Very significant savings for consumers could be realized by dealing squarely with the huge mark-ups for collision repair, steering to certain repair shops by insurers and the lack of standards in oversight for repair shops,” Rep. Thomas Stallworth (D-Detroit) said at the event.

Reforms have recently been a hot topic in Michigan, which the Insurance Information Institute lists as one of the most expensive states for auto coverage in the U.S.

Dems Want New MCCA Board

The MCCA collects a per-car fee, the cost of which is paid by insurers but ultimately is passed on to policyholders, to support the state’s costliest claims (those over $500,000). Claims can currently reach that high amount because Michigan is the only state in the U.S. that awards unlimited, lifetime injury benefits to those hurt in crashes.

That per-car fee is set to jump to $186 next month, its sixth consecutive increase in as many years.

According to the recent plan from Democrats, the MCCA’s board of directors should be overhauled with “public interests” instead of its current makeup of industry executives. In addition, the per-vehicle fee would be collected by the Secretary of State instead of insurers.

An additional commission would be created to “track fraud, waste and abuse,” according to the package.

The MCCA is also targeted for major reforms in a plan backed by Gov. Rick Synder. That proposal, HB 4612, would trade the MCCA entirely for another entity, keeping the current MCCA in place only until it pays its deficit.

Insurance, Repair Industries Face New Rules with Proposals

One of the most major regulatory changes proposed by Democrats is narrowing the set of factors, like credit scores, that insurers often use to price policies.

Under the plan, insurers would not be able to consider credit history, education and occupation in ratings. Stallworth said the current regulatory framework is too lax for insurers and can result in unfair situations for drivers.

“Presently, a driver with a DUI and a good credit score gets a better rate than a laid-off factory worker with a challenged credit score who has never had a ticket,” he said.

In addition, insurers would be required to “justify rate increases” with the state’s insurance regulatory department and ensure that 80 percent of premiums “be spent on clients.”

Insurers would also be open to being sued in court by policyholders who are overcharged, according to the reforms.

The reform package would also include prohibitions on insurers from maneuvering policyholders to their own set of repairers and body shops, a practice called “steering.”

Republican and Democratic Proposals Have Large Differences

Gov. Snyder pressed no-fault reform in his State of the State Address earlier this year, saying major changes are needed for the state’s auto insurance. Those proposed changes materialized in April with HB 4612, sponsored by Rep. Pete Lund (R-Shelby).

The recent reform package from Democrats is markedly different from HB 4612, which institutes a $1 million limit on benefits and requires Michigan insurers reach savings of $125 per car in premiums through the bill’s first year.

Stallworth said that, under the Democrats’ plan, drivers would see lower insurance premiums without such a cap on benefits “tearing away” coverage that is often “life-saving” for severely injured motorists.

The Coalition Protecting Auto-No Fault (CPAN), which opposes HB 4612, praised the House Democratic Caucus for proposing reform measures that are vastly different from those coming from the governor and Rep. Lund.

“Our members find it hard to fathom that lawmakers on either side of the aisle would even consider legislation such as HB 4612,” John Cornack, CPAN’s president, said in a statement.

HB 4612 has gained a strong wave of opposition since it was introduced; the bill passed its first House committee early last month.

But further progress for the bill is in doubt, with Stallworth promising “united opposition” from Democrats in the state House.

Stallworth called HB 4612 an “industry-backed measure” that failed to address “the unaffordable premiums motorists in the state’s urban areas are forced to pay.”

Stallworth also said that Democrats’ reforms focus on comprehensive and collision coverage, which he said makes up most of premium expenses.

“We need to go fishing where the big fish are,” said Stallworth, who added that the Democrats are still drafting their reform bills.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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