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What Sen. Virgil Smith is getting right (even when he's getting most of it wrong)

It’s time to enact SB 226, which regulates  “excessive” insurance company rates as a better way to lower auto insurance rates for Detroiters

Sen. Virgil Smith SB 226

I’ve been pretty hard on Sen. Virgil Smith lately. And deservedly so. Yesterday, I wrote a blog post about Smith’s new Senate Bill 251, a misguided proposal that would cap medical coverage for auto injury claims at $50,000. This would wipe out the crown jewel of Michigan’s No Fault system, while boosting insurance company profits to staggering new levels.

And it would punish with financial ruin those who are injured in serious automobile accidents by lowering the quality of care and pushing people onto Medicaid.  So SB 251 essentially shifts the expensive burdens of medical care from the auto insurance companies to the rest of us as taxpayers, while at the same time doing nothing to actually lower rates.

We just have to hope the insurance industry is nice enough to do this on its own.  But if history is any guide, we will surely be disappointed.  From 2004 to 2010, auto accident lawsuits plummeted in this state, insurance profits skyrocketed, and yet every single year, we saw increases in insurance rates for ordinary drivers.

SB 251 would also eliminate the Michigan Catastrophic Claims Association (MCCA), which provides life-long coverage for all auto accident injuries costing more than $500,000.

For more information, click here to read a comprehensive analysis of Michigan No Fault reform and the latest developments.

These measures are horrible for the safety and recovery of injured auto accident victims, and they’re a boondoggle for the auto insurance companies. This is because once the lowly $50,000 cap in No-Fault benefits is reached, and without our MCCA as a back-up for catastrophic injuries of over $500,000, auto accident victims will be forced to turn to Medicaid and financial ruin.

But Smith isn’t 100% wrong.  Another Smith bill that is not getting as much attention as SB 251, but which is very much needed, is his new SB 226:

SB 226 would  address excessive auto insurance rates. Under this proposed legislation, auto insurance companies must file their rates with the State of Michigan and the insurance commissioner has 60 days to deny them. But in order to deny a rate increase as excessive, the insurance commissioner must prove that there’s no competition available.

This is what allows Michigan’s auto insurance industry to make its record profits in this state. SB 226 changes this, and brings Michigan more in line with the majority of other states that can regulate auto insurance.

SB 226 redefines excessive rates as those that are “likely to produce a profit that is unreasonably high in relation to the risk involved of if the cost of the insurance is unreasonably high in relation to services rendered.”

This is what I’ve been talking about all along. In fact, from my blog post from June 2011, Who’s really behind Sen. Virgil Smith’s plan to destroy Detroit residents’ No-Fault insurance rights?, I discussed how lowering auto premiums for Detroit residents is a worthy goal, but it can be done in a better, more effective and safe way:

“… why is Smith not taking on the auto insurance companies? For example, even though Michigan’s auto insurance companies enjoy some of the highest profitability margins in the nation here, Michigan is one of the few states without an insurance commissioner that can regulate the amount of profits insurance companies can make – for a product that we as drivers are legally required to buy.”

I went on to challenge Smith:

“If Smith truly cared about Detroiters as he says he does, and wants to lower insurance rates as he says he does, wouldn’t this be a better way to lower premiums…?.”

SB 226 does exactly that.

This bill may be dead on arrival in our current world, where the Republicans are heavily funded by the insurance industry. But I congratulate Smith on at least addressing something vital that has been ignored for far too long because of the immense power of the insurance lobby in this state.

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Blog Author Steven M. Gursten
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