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What’s so great about Michigan’s No Fault insurance system anyways?

And why we have the best insurance system in the entire country, at an incredible bargain!

After my blog posts and video on the problems with D-Insurance, I received an e-mail last week from a reader asking:

“What’s so great about Michigan No Fault anyways?”

That’s a huge part of the problem. No one really knows how great No Fault is until AFTER they’ve been seriously hurt in an automobile accident. Most people pay for car insurance and have no idea what legal protections our state No Fault law provides for them. They also don’t understand what a great bargain No Fault is when compared to what people who are hurt in bad car wrecks receive in other states around the country.

So today, I’d like to answer the question I received last week.

What is No Fault?

To start, the term No-Fault means that both parties involved in an auto accident are entitled to benefits from their insurance companies, no matter who caused the motor vehicle accident.

The entire Michigan No Fault law was created specifically to reduce the costs of litigation that existed when Michigan was a pure “tort” state – one where a car accident victim has to hire a lawyer to sue for all economic costs, medical bills, wage loss, and pain and suffering from the insurance company of the person who causes the wreck.

What do people in “tort” states receive?

Most states are pure tort states. If someone is seriously injured in a pure tort state by a driver with minimum insurance policy limits, they will often end up with huge medical bills that are far over the $10,000 or $20,000 insurance limits of the other driver. If they do not have great health insurance, that usually means huge personal financial loss, eventually causing personal bankruptcy, and being shifted to Medicaid to pay for continuing medical care and treatment.

Michigan pays about $300 more than the national average for car insurance.  And a lot of that $300 is from markets like Detroit, where insurance companies can use credit scoring to jack up rates. This causes the poor to pay more for car insurance, even when they have identical driving records to wealthier people in the suburbs. Obviously, in markets like Detroit, the impact falls disproportionately on minorities as well.

And for our $300 more that we pay for auto insurance, on average, what do we receive in return?

4 great things about Michigan No Fault

1. Michigan No Fault provides comprehensive care for car accident victims —  for life if necessary: The law covers “all reasonable charges incurred for any reasonably necessary products, services and accommodations for an injury person’s care, recovery or rehabilitation.” This provides for medical benefits (also called personal injury protection (PIP) benefits) for a person injured in a serious accident with no monetary limits on care, including 24-hour in-home nursing services called attendant are. The law also provides for a wage loss benefit that pays you 85% of your salary while you’re recovering from your injuries and off work, as well as replacement services (help around the house and with children) and a survivor’s loss benefit. Here’s more information about your Michigan No Fault benefits.

2. Michigan No Fault protects car accident victims from bankruptcy: Because Michigan No Fault reimburses accident victims for accident-related medical expenses and provides the other rehabilitative benefits, it protects accident victims from bankruptcy. According to Harvard Medical School, medical bills are the top reason for bankruptcy in America.

3. Michigan No Fault puts the onus on insurance companies instead of on taxpayers: Michigan residents are required by law to pay for No Fault insurance as part of their car insurance policies. When a person is in an accident, the insurance companies use that money (which is in a fund called the Michigan Catastrophic Claims Association that helps people with catastrophic injuries and claims exceeding $530,000)  to reimburse accident victims for their medical care and other benefits. This keeps the onus on insurance companies and away from the taxpayers. Without Michigan No Fault, taxpayers would be forced to foot the bill for the care and rehabilitation of accident victims via Medicaid and Medicare.

4. Michigan No Fault does not raise insurance premiums (the insurance companies do that): Under Michigan No Fault, drivers are assessed a yearly fee ($186 as of publication), which goes into a pool called the Michigan Catastrophic Claims Fund. For instance, in 2011, the annual assessment was $145 and the fund paid out $133 per driver. Also at that time, insurance premiums were only $22.47 over the national average. To put that number in perspective, Florida’s national average was $250 more than Michigan’s, with personal injury protection limits of only $10,000. In addition, the Michigan Catastrophic Claims Association is currently in great shape. Consider the facts:

  • The MCCA’s deficit shrunk $1.4 billion between 2013-14.
  • The MCCA’s claims reserves increased more than $500 million.
  • The MCCA’s assessment income exceeded reimbursement payouts by $253 million – an increase of more than $100 million.
  • Reported claims are lower than five years ago.

The grass is not always greener.  Michigan citizens have the best deal around with No Fault.

Now you know.

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Blog Author Steven M. Gursten
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