Study: Handful of Pricey Claims Inflates Mich. Insurance Rates

Michigan’s no-fault insurance system has seen yearly increases in losses that amounted to a growth of 192 percent in total losses over nearly the past decade, according to a recent study from the Insurance Research Council (IRC) that identified a small subset of the priciest catastrophic claims as the chief cost drivers.

The study highlighted a no-fault provision existing only in Michigan that allows policyholders lifetime compensation for collision-related injuries. That provision, combined with a 4 percent yearly average inflation rate for medical care, led to an average spike of 13 percent per year in total losses for the state’s insurance system between 2002 and 2011, according to researchers.

An analysis of 640 claims closed in 2011 found that cases involving losses greater than $250,000 represented just 1 percent of closed claims but 22 percent of total paid claims losses.

“This report provides further evidence of the role that a relatively small number of very large claims play in the increased costs to the entire Michigan no-fault system,” Elizabeth Sprinkel, senior vice president of the IRC, said in a statement.

Medical expenses from catastrophic claims still make up a significant chunk of the cost of those claims at 83 percent for closed and 90 percent for open claims. Not only have those shares risen over the years, but also researchers found that pricey medical procedures and hospital stays are becoming more common in claims.

The claims analysis showed that the number of claimants undergoing an MRI, which cost an average of $4,450, doubled from 8 percent in 2002 to 16 percent in 2011. At the same time, the number requesting a CT scan, which cost an average of $2,720, increased from 16 percent to 25 percent.

Of those closed claims, researchers also found that 76 percent of claimants received some kind of hospital treatment compared with a nationwide average rate of 61 percent.

Also, claimants made heavy use of a feature unique to Michigan’s no-fault system that allows family members to serve as caregivers. Of all open catastrophic claims with accident dates of 2004 or later, almost 60 percent included expenses for “family-provided attendant care.”

The study was published as debates about reform swirl around the state’s no-fault system. Industry groups decried Gov. Rick Snyder’s official repeal last week of state law requiring that all motorcyclists wear helmets, saying they were upset at statements Snyder made indicating he would only approach the repeal as a framework for broader reform.

Those groups, which included the American Automobile Association of Michigan, also said rising costs of the state’s no-fault setup is narrowing access to cheap rates for motorists seeking online auto insurance quotes or quotes directly from an agent.

AAA of Michigan issued a statement that it was “extremely disappointed” at the strong possibility of the no-fault system being further burdened by injury-related costs of helmetless motorcyclists and the complications that would have on discussions of reform.

Proposals to abolish the no-fault insurance system’s lifetime coverage and allow policyholders options of up to $500,000, $1 million or $5 million in coverage have stalled in the state Legislature.

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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