Mich. No-fault Reform Bill Caps Insurance Benefits, Nixes MCCA

Michigan’s long-running effort to reform its no-fault auto insurance system is picking up steam in the state Legislature after a bill was proposed late last week that would cap currently limitless benefits and eliminate the state fund that reimburses insurers for the priciest personal injury protection (PIP) claims.

SB 251, from Sen. Virgil Smith (D-Detroit), follows several pushes from legislators who hoped to overhaul the state’s no-fault system, which provides uncapped medical benefits over a lifetime to drivers injured in crashes, regardless of who was at fault for the crash. Michigan is the only state in the U.S. to provide such full medical benefits.

In January, Gov. Rick Snyder touched on no-fault reform in his State of the State address, saying that the entire auto coverage system was getting bloated from the escalating costs of PIP claims that are filed under the no-fault system. In his speech, Snyder highlighted auto coverage costs in cities like Detroit as being some of the most expensive in the U.S.

Bill Sets Maximum for Benefits, Eliminates MCCA

Under SB 251, a $50,000 PIP claim benefit cap would be introduced in an effort to reel in the long-growing cost of such claims.

The proposed limit would lower the currently nonexistent cap to be the same as New York’s.

The state hopes to see overall costs for auto coverage in Michigan fall with the addition of “procedural codes” that went into effect early this year.

But costs are still a nagging problem in Michigan, where the state’s “one-size-fits-all” approach has made it especially expensive for consumers shopping for coverage. According to the Property Casualty Insurers Association of America (PCI), Michigan’s auto insurance policy costs are 20 to 30 percent more expensive than its neighboring states.

According to the Insurance Institute of Michigan, the average cost of a medical claim jumped 224 percent over the last 12 years, while collision claim costs averaged just 27 percent during the same period.

Another rising cost is the $175 per-car fee charged to insurers to fund the Michigan Catastrophic Claims Association (MCCA), a nonprofit reinsurance entity which pays for PIP claims when they go over $500,000. That fee, which insurers generally pass on to policyholders through higher premiums, has risen significantly from $104 in 2008.

After the MCCA pays its final liabilities, the bill mandates that the state’s insurance commissioner “dissolve” the association. The final payment will also see the MCCA’s board of directors, which holds insurance executives as members, “wind up the affairs of the association [and] transmit any remaining money held … to its members in a manner provided for in the plan of operation,” according to the bill.

The MCCA is in the middle of a lawsuit brought by the Coalition Protecting Auto No-Fault (CPAN) and the Brain Injury Association of Michigan (BIAMI), which claimed in their suit that the public had a right to see the association’s financial records. Such records, according to the groups, would be crucial to debates about reforming the state’s auto insurance system. A circuit court judge sided with the plaintiffs in January, but the MCCA has since appealed the ruling.

Lawmakers Previously Sought Reforms

Smith’s proposed bill isn’t the first time the senator has pursued no-fault reforms. Smith, along with SB 251’s current co-sponsor, Sen. Joe Hune (R-Hamburg), introduced a proposal in 2011 to allow lower-income, safe drivers to choose their level of PIP coverage.

Under that proposal, a program for those motorists would have offered a choice of $50,000 or $100,000 benefit limit on PIP-related compensation.

Another proposal introduced to the Legislature in 2011 was HB 4936, a bill that nixed limitless benefits over a lifetime in lieu of a tiered coverage system that drivers could choose from and a fee schedule for PIP-related medical claims.

Last year, lawmakers also considered several bills that all sought restrictions on which injured motorists could receive PIP-related compensation. Certain populations would be excluded under those bills, including drunk drivers and illegal immigrants.

None of those efforts became law.

CPAN has opposed several of those proposals, especially those like SB 251 that seek restrictions on PIP benefits. The group calls the no-fault system’s “full medical coverage” provided over the lifetime of an injured driver a “hallmark.”

It “must be maintained without limitations,” according to CPAN.

Setting a cap would hurt health care employment and crash victims in need of costly medical treatment, the group says.

Senator’s Other Bill Sets Rules for Auto Insurance Rates

Smith also recently proposed SB 226, which was introduced last month and establishes rules for car coverage rates that include prohibiting rates from being “excessive.”

Under the bill, an “excessive” rate is “likely to produce a profit that is unreasonably high in relation to the risk involved or if the cost of the insurance is unreasonably high in relation to services rendered.” Rate filings submitted to the state can be rejected by the insurance commissioner, who must determine whether the rate is excessive and whether consumers would have other options for purchasing coverage.

SB 226 was referred to the Senate Insurance Committee on Feb. 27; SB 251 was introduced on March 7 and referred to the same committee.

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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