Country’s third most expensive No-Fault rates highlights the need for taxpayers to know the truth on how auto insurance costs are determined
Michigan drivers know very little about why Michigan No-Fault auto insurance companies charge the high prices they do.
We deserve to know more. Much more.
I’ve been an insurance lawyer for almost 20 years. Here’s what I wish I could tell everyone: in Michigan, No-Fault insurance companies can effectively charge whatever they want, for whatever reason they want, and make as much money as they want, with pretty much absolute impunity. (MCL 500.1615(5); 500.2109(1)(a))
In other words, want to know why we have such expensive insurance in Michigan? That’s why.
For example, even if a Michigan Insurance Commissioner were inclined to rein in auto insurance prices, Michigan law makes it practically impossible to do so. Excessive pricing of auto insurance by insurers does not justify regulatory action by the Insurance Commissioner. That would require a finding that no “reasonable degree of competition” exists in the marketplace. No such finding has ever been made. (See MCL 500.2109(1)(a))
So insurance companies in Michigan are literally on the gravy train, and because of this loophole in our laws they make more money – including a finding of “excessive profits” – when the matter was investigated by the Angoff Commission.
This frustrating state of affairs has been made all the more apparent by recent developments:
- Michigan ranked third in the country for the highest priced auto insurance, according to Insure.com’s 2012 car insurance rate survey. (“Car insurance rates by state: The most and least expensive places to buy auto insurance in 2012.”)
- The Michigan Catastrophic Claims Association (MCCA), which reimburses No Fault insurance companies for medical claims that exceed $500,000, announced a $30 or 21 percent increase in its annual per vehicle assessment. The assessment, which is charged to the No-Fault insurers and is used to reimburse them for claims exceeding $500,000, is “generally passed on” to and paid for by auto insurance consumers (More on this subject next week).
Michigan drivers need to know more about how Michigan No-Fault auto insurance is priced the way it is – and why.
How to fix Michigan No-Fault? Lessons from one insurance lawyer on how to lower prices
Here is how I would improve transparency into the price-setting process that No-Fault auto insurance companies undergo:
1. Michigan’s auto insurance companies should be required to disclose annually their loss ratios on their No-Fault (PIP) coverage lines.
An auto insurance company’s “loss ratio” reflects how much of each premium dollar is paid out in claims. It is calculated by dividing the insurer’s “incurred losses” by its “earned premiums.”
Under Michigan law, if an insurer’s loss ratio is 60 percent or less — meaning that for every $1 collected in insurance premium only $.60 is paid out in claims – then its insurance prices are deemed “unreasonable.” (MCL 500.1615(5))
In reporting its loss ratios for No-Fault coverage, it is also crucial that No-Fault insurers include in their “incurred losses” calculation only those losses actually paid by the insurer – not the catastrophic claims payments made by the Michigan Catastrophic Claims Association.
2. Michigan’s auto insurance companies should be required to disclose No-Fault claims trends
In the ongoing debate over so-called Michigan No-Fault “reform,” the state’s auto insurance industry keeps beating the drum about how much the average No-Fault (also called personal protection insurance or PIP) claim has increased. Of course, they don’t talk about how much in profit they make, or how much more the profits are in this state than in other states where excessive pricing can be regulated by state insurance commissioners.
The insurance industry is leaving out a lot in its fear mongering campaign – and this includes all the necessary contextual information so we as Michigan taxpayers and drivers can make the right decisions! Yes auto insurance costs too much, but they are using this fact, caused by unregulated pricing to try to take away valuable protections from us all so they can change the law, pay-out less, and make even more money. It’s a pretty sweet gig.
If I could, I would want Michiganders to know whether increases in the average No-Fault rates the following:
- No Fault claim trends: Whether No-Fault claims are increasing or decreasing.
- No-Fault payout trends: Whether No-Fault auto insurance companies’ payouts on No-Fault claims are increasing or decreasing.
- No-Fault consumer trends: Whether the number of premium-paying No-Fault insureds in Michigan is increasing or decreasing.
3. Michigan’s insurance commissioner should conduct an updated study of the excessiveness or non-excessiveness of Michigan auto insurance prices
In 2003, a former Michigan Insurance Commissioner arranged for a study and analysis of Michigan’s auto insurance market to determine its competitiveness and the excessiveness or non-excessiveness of auto insurance prices.
(Both can be found in the publications/reports sections of the Michigan Department of Insurance and Financial Services).
The impetus for the study was “a substantial number of consumer complaints … regarding high … auto insurance premiums …”
The study, which was completed in September 2004, and the commissioner’s summary, which was completed in March 2005, provides invaluable insight into the inner workings of Michigan’s auto insurance market.
– Steven Gursten is a head of Michigan Auto Law. He handles auto accident lawsuits and No-Fault insurance litigation. Steve is president of the Motor Vehicle Trial Lawyers Association. He frequently writes and speaks on auto insurance and Michigan No-Fault reform, and is available for comment.
Related information to protect yourself:
Michigan Auto Law exclusively handles car accident, truck accident and motorcycle accident cases throughout the entire state of Michigan. We have offices in Farmington Hills, Sterling Heights, Ann Arbor, Grand Rapids and Detroit. Call (800) 777-0028 or to speak with one of our No-Fault insurance lawyers today.