Insurers Cheer Gov.’s Calls for Michigan Auto Insurance Reform

In his recent State of the State address, Michigan Gov. Rick Snyder pressed for reform of no-fault auto insurance there while publicizing an overhaul of the state’s regulatory department to accommodate his call to fight industry fraud.

Drivers in Michigan are required to obtain personal injury protection (PIP) coverage underpinning the state’s no-fault insurance system, which pays an unlimited amount of medical expenses for crash victims over their entire lifetime; it is the only state in the U.S. to require such extensive coverage.

However, PIP-related claim costs have shot upward and pushed the overall price of auto insurance in Michigan to high levels that some experts say are unsustainable.

Snyder echoed the sentiment in his speech, delivered Wednesday, highlighting the wide gap between the average claim size in Michigan, which he pegged at $44,000, and the state with the next largest average claim size, $17,000.

Also, he said, three Michigan cities rank in the top 10 for the highest auto insurance costs nationwide, with Detroit earning the dubious distinction of being atop that listing.

“It’s time for some reforms, folks,” said Snyder. “[It] is time to do that in a thoughtful way.”

Michigan Previously Pushed Reforms

Lawmakers had pushed several reform efforts to various stages of the state Legislature last year, but none found success as a bill finalized into law.

A four-bill collection of proposals aimed to reform compensation eligibility for PIP claims by excluding drunk drivers, illegal immigrants and other populations from being able to get no-fault payments. All of those bills were recommended by the state House Committee on Insurance in June but have seen no action on the House floor since then.

Legislators also sought to nix no-fault provisions allowing claimants lifetime benefits for their injuries and tier the no-fault system into PIP levels of $500,000, $1 million and $5 million that would allow policyholders to choose their amount of coverage. Those legislative proposals also stalled.

The Property Casualty Insurers Association of America (PCI) said that, in the face of those failed proposals, Gov. Snyder’s renewed call for reform was “an important next step toward addressing skyrocketing costs.”
PCI, with a membership that writes nearly half of premiums in the nation’s auto coverage market, said states neighboring Michigan pay 20 to 30 percent less for auto coverage because the state’s uniquely broad system of benefits amounts to an ill-advised “one-size-fits-all” approach.

“[The no-fault system] is expensive , has few cost controls and does not provide any incentives for thrift,” Jeffrey Junkas, a PCI manager for the region, said in a statement.

Fund for Costliest No-Fault Claims Ordered to Open Financial Records

Another reform effort may already be underway. Earlier this year, a circuit court judge ordered the disclosure of financial records of the Michigan Catastrophic Claims Association (MCCA), which pays out for high-cost claims that are covered because of the state’s no-fault laws.

The MCCA fee charged to insurers for each of their vehicles has also increased auto coverage costs for consumers, who ultimately shoulder the fee because insurers recoup their MCCA payments through higher premiums.

The MCCA fee has increased continuously since 2008, when it was $104; it rose to $175 in July 2012.

Governor Establishes New State Regulatory Office, Wants Additional Agency

In the State of the State, Snyder said legislators should create an Insurance Fraud Authority (IFA) to stamp out illegitimacy throughout the industry.

“[The IFA would] address issues there that we can bring benefits to our citizens,” he said.

Snyder’s address also led up to an executive order announced today establishing the Department of Insurance Financial Services (DIFS), providing “a greater focus” on duties that are currently assigned to the Office of Financial and Insurance Regulation (OFIR). Consumer protection and industry sustainability will be some of DIFS’s foremost concerns, according to Snyder.

“This order will also go a long way toward creating and enforcing appropriate regulations, so we have robust consumer protections in place,” Snyder said in a statement.

PCI said it “welcomed” Snyder’s move to expand regulatory operations.

“This is further evidence of his commitment to creating a positive insurance environment which protects consumers and promotes economic development and job growth,” Junkas said.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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