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My response to Insurance Institute of Michigan director Pete Kuhnmuench on auto insurance company profits and how they affect Michigan drivers’ pocketbooks

Peter Kuhnmuench, executive director of the Insurance Institute Of Michigan

Peter Kuhnmuench, executive director of the Insurance Institute Of Michigan

I was recently featured as a guest writer for the Detroit Free Press, on the topic of No Fault reform. Here’s my article:

Steven M. Gursten: Profits, not medical claims, drive up the cost of auto insurance in Michigan

The crux of my article was that Michigan auto insurance companies collected more than $2 billion more in auto premiums in 2011 than they paid out in claims – and pocketed the difference, according to data provided to Michigan Auto Law by the National Association of Insurance Commissioners and the Michigan Office of Financial and Insurance Regulation.

These staggering profits are particularly significant, as the state’s powerful auto insurance lobby is pushing hard to change our No Fault auto insurance system. It is insisting that No-Fault medical benefits must be slashed or capped, because it’s the cost of providing unlimited necessary medical care to catastrophically injured auto accident victims that’s forcing them to continually raise already high auto insurance prices.

Today, I was pleasantly surprised to see that Pete Kuhnmuench, the executive director of the Insurance Institute of Michigan, responded to my guest column, as Kuhnmuench has been unresponsive to my efforts to have a discussion on No Fault reform with him.

In his letter to the editor, Insurance companies not making a fortune off you, Kuhnmuench ignores, but does not dispute, the fact (which I made in my Detroit Free Press guest column) that “Michigan auto insurance companies collected more than $2 billion more in auto premiums in 2011 than they paid out in claims.”

Additionally, the facts belied Kuhnmuench’s protestations about how unprofitable Michigan is for auto insurance companies.

First, Kuhnmuench and the Insurance Institute of Michigan have contradicted his claims of unprofitability: “Recent profitability has enabled companies to decrease auto insurance premiums over the past several years. … ‘The insurance industry’s profitability also has a positive impact on the state of Michigan. … Michigan profits are comparable to other industries. … ‘The competitive market is working in Michigan. Insurance companies are profitable which allows them to reduce premiums …’” (Insurance Institute of Michigan, “Insurance Industry Stability Benefits Michigan,” 6/7/2007 press release quoting executive director Pete Kuhnmuench)

Second, Jay Angoff, a former state insurance commissioner, in a study, has described Michigan auto insurers as “highly profitable” and being “significantly more profitable than the national average” (See “Michigan auto insurance industry ‘highly profitable,’ according to former insurance commissioner”).

Third, if Michigan’s auto insurance market were so unprofitable, then it is unlikely there would 78 insurers doing more than $1 million in auto business and several hundred who have been authorized to do business in Michigan.

I wanted to share my response to Kuhnmuench, as posted on Facebook today:

The fact is that Michigan’s auto insurance industry is “making a fortune off” all of us.

In 2011, Michigan’s auto insurance companies collected more than $2 billion more in auto premiums than they paid out in claims. $2 billion! Only the wealthy-beyond-belief auto insurance industry could be so oblivious as to claim that $2 billion is not a “fortune.” Significantly, Mr. Kuhnmuench does not deny this fact. Instead, he tries unsuccessfully to rationalize it. His insinuation that the $2 billion-premium-excess is being used by Michigan auto insurers to buy “reinsurance” and to pay for the medical costs of catastrophically injured auto accident victims is misleading and untrue. The premiums or assessments that auto insurers pay to the Michigan Catastrophic Claims Association (MCCA) for “reinsurance” are recouped 100% from consumers because the insurers pass along the assessment costs to consumers in the form of higher auto insurance rates.

Additionally, auto insurers receive 100% reimbursement from the Michigan Catastrophic Claims Association for every dollar paid out on catastrophic claims. Michigan auto insurance consumers will likely find little comfort in the fact that their money, rather than being spent on their No Fault benefits or being refunded to them as “overpayments,” is being used to pay for the insurers’ “other expenses,” which include: (1) Helping to fund a $1 billion increase in compensation for Michigan insurance industry employees; and, (2) Paying for the $9 million, $17 million, $14 million  and $4 million compensation packages for the CEOs of four of Michigan’s top  writers of auto insurance: State Farm, Allstate, Progressive and The Hanover Group (Citizens Insurance Company of America and of the Midwest).

It’s doubtful that Michigan auto insurance consumers will be any more understanding of the fact that they are footing the bill for approximately 19%  increases in the compensation packages of the MCCA’s Executive Director and Controller, which puts their salaries at $164,910 and $128,122, respectively. The average mean wage for all occupations in Michigan in 2012 was $43,970, according to the Bureau of Labor and Statistics.

As for Mr. Kuhnmuench’s claims that Michigan’s auto insurance industry has been unprofitable since 2001, here’s what he and the Insurance Institute of Michigan have previously said: “Recent profitability has enabled companies to decrease auto insurance premiums over the past several years. … ‘The insurance industry’s profitability also has a positive impact on the state of Michigan. … Michigan profits are comparable to other industries. … ‘The competitive market is working in Michigan. Insurance companies are profitable which allows them to reduce premiums …’”

Similarly, former state insurance commissioner Jay Angoff, in a study, has said that Michigan auto insurers are “highly profitable” and he quoted a national insurance trade publication which said that Michigan auto insurers had been “significantly more profitable than the national average.”To the “people struggling to pay their [auto insurance] bills,” whom Mr. Kuhnmuench professes to care so much about, he promises nothing. No guarantees of meaningful, long-term savings. Not a word.

If Mr. Kuhnmuench and the auto insurance industry he represents were truly serious and sincere about lowering “the cost of auto insurance in this state,” then why don’t they propose something bold and effective such as, say, a permanent cap on auto insurance rates (e.g., $200 below the national average) to match their proposal to permanently cap No Fault medical benefits?

Unfortunately, given Mr. Kuhnmuench’s and the industry’s silence on the issue, the answer is obvious.

Sources:

  1. Michigan Catastrophic Claims Association
  2. “Insuring Michigan’s Future – A Look at the Economic Impact of the Insurance Industry,” Insurance Information Institute, Presentation by Robert Hartwig, 1/25/2011(Page 13)
  3. “Michigan auto no-fault: Critics question compensation of insurance fund execs,” MLive, Melissa Anders, 5/1/2013.  Insurance Institute of Michigan, “Insurance Industry Stability Benefits Michigan,” 6/7/2007 press release quoting Executive Director Pete Kuhnmuench)

And here are a few of the Free Press reader comments to Kuhnmuench’s letter to the editor:

William Goodwin:

“The (insurance company) Vampires can’t WAIT for their Windfall to be delivered…..and what are you going to get???? A 12 Month Savings of possibly $150…. after which all bets are off and the Vampires can get us back to maintaining The Lifestyle in which they have become accustomed to..OOh yeah for that $150 “trade off” you get a ticket for a roll of the Dice to enter the Medicare Hell Lottery….Thank you Pete (R) Lund”

The (spokesperson) for the Insurance Vampires forgot to include that The Cost of doing “Business” also includes Corporate Art Collections, Lear Jets, Taj Mahal Real Estate , a small Army of CEO’s and Executives that command an incredible amount of “Compensation” (Including Vacation homes) that is considered Normal ONLY in America.
Once AGAIN the Silence on Redlining and the Light of Day being cast upon the MCCA Books is woefully absent…and apparently will NEVER be allowed to be open for discussion…. According to this guy the Insurance Vampires are nothing more than a Benevolent Philanthropical Foundation that “Gets By” on Grocery Store Margins…..”

Tom Griebe:

“The assertion that the insurance companies consistently lose money in this state is laughable. Anyone knows that they would just raise rates before they would let that happen. Also, why not open the books and show us the income vs outlay for extended medical care associated with no fault. They are hiding something, lying or both.”

Christopher Wojtowicz:

“Nice retort by Insurance Industry. The truth will never be known because no one will give the true picture. Urban areas are red lined, the industry knows and fosters it. NO Fault reform is coming, don’t expect the Insurance Industry to lower rates, use cost containment measures or measures that would allow everyone to insure their vehicles.”

Related information:

Michigan No Fault Insurance Reform Resource Center

Insurance Industry’s Top 4 Myths about No Fault insurance reform

Michigan’s No Fault system is incredibly valuable… just ask Peter Kuhnmuench of the Insurance Institute of Michigan

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