Mich. Governor, Legislators Embark on Reforming No-Fault

In what he called a review that is “long overdue,” Michigan Gov. Rick Snyder stood alongside legislators last week to propose major reforms for the state’s no-fault auto coverage system that are meant to address ballooning costs and premiums.

Currently, Michigan is the only state in the U.S. to require no-fault car coverage awarding unlimited benefits to an injured driver over the rest of his or her entire lifetime. A policyholder’s own insurer compensates them for medical costs regardless of who caused the crash.

The bill was formally introduced Tuesday as HB 4612, but the governor previewed the bill’s details in a press conference and release last Thursday and said it would:
–Lower the uncapped benefit to a $1 million limit.
–Require that medical providers charge insurers fees for auto-related injuries that match the “average fees they charge” other types of insurance.
–Create an insurer-funded authority that would provide fraud-fighting agencies with funds and support them with a central bank of fraud-related data.
–Replace the Michigan Catastrophic Claims Association (MCCA), a reinsurance fund that supports the most costly of no-fault claims through fees charged to insurers, with another “non-profit entity that would be subject to full transparency.”

At a press conference promoting his proposal, Snyder cited data from the National Association of Insurance Commissioners (NAIC) showing that Michigan’s vehicle premiums sit at an average $1,073 per year. It is the highest in the region, with next most-expensive state being Illinois, which had an average premium of $812 a year.

Snyder said the current setup is decades overdue for reforms.

“These changes will create a policy that continues to cover accident victims far better than any other state and will create cost controls that stem the tide of rising insurance premiums while also providing immediate relief for families,” he said.

Other lawmakers attending the press conference said they agreed, including Rep. Pete Lund (R-Shelby Township), who chairs the House Insurance Committee and called the no-fault coverage requirement “outdated, expensive and unsustainable.”

“[It] puts an incredible burden on Michigan families trying to make ends meet,” he said. “The hard-working people of this state need and deserve relief.”

Snyder also said Sen. Virgil Smith (D-Detroit), the minority vice chair of the Senate Insurance Committee, will lead creation of a pilot program for lower-income motorists in the same vein as legislation he proposed in 2011.

Smith has focused several previous efforts on affordability in no-fault-related legislation, including the effort in 2011 that offered low-cost policies with a $50,000 cap offered to lower-income motorists. The lawmaker introduced similar legislation on Tuesday with SB 326.

Smith said last week that, in his home district of Detroit, the lack of affordable auto insurance has led many to either go without coverage or game the system.

“Some residents who do live in Detroit use a false address to obtain more affordable insurance,” he said in a statement. “This weakens Detroit, and will likely void a policy when they need it.”

Legislative provisions from last week’s proposals are scheduled be discussed at a House Insurance Committee hearing this week.

Coalition to Host Workshops About ‘Unintended Consequences’

Snyder’s announcement last week has already riled up opponents, with the Coalition Protecting Auto No-Fault (CPAN) hosting workshops to review the “unintended consequences” of “these so-called reforms.”

“I think once the public and legislators know what’s hidden in this legislation, the answer would overwhelmingly be ‘no way,’” CPAN spokesman John Truscott said. “And, actually, it would probably be a lot less polite than that.”

CPAN said the proposed $1 million cap would give a short shrift to severely injured motorists whose medical bills can easily exceed that amount. Claims over that amount usually come from the “most vulnerable victims,” according to John Cornack, CPAN’s president, who said that the proposed cap will “pile the financial responsibility to the taxpayers” by pushing the priciest claims into the Medicaid program.

CPAN has spearheaded several efforts to open up the financial records of the MCCA. The association’s per-vehicle fee has risen significantly in recent years (the most recent hike takes effect this summer) and, although it is technically charged to insurers, the overall burden of those costs are usually passed onto drivers through higher premiums.

According to Snyder’s proposal, the MCCA will be “phased out” but would continue to fund current crash victims receiving uncapped lifetime compensation.

CPAN took issue with statements from Kevin Clinton, the state’s insurance commissioner, who said at the press conference that funds left over from MCCA’s dissolution would be redistributed to taxpayers in the state.

According to the coalition, master documents for the association state that surplus funds would go to insurers that make up the MCCA’s membership.

“It’s a reckless reform, ill-conceived and weighted heavily in favor of the insurance companies,” Cornack said.

CPAN workshops on the proposals began this week, with the next being hosted on Thursday and another next week on Monday.

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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