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MCCA assessment increase strengthens case for transparency

Why the jump in MCCA No Fault fee, which will cause auto insurance prices to rise? Transparency needed to explain increase in light of $900 million increase in reserves, 13% drop in claims

MCCA price increase, image

The Michigan Catastrophic Claims Association’s (MCCA) latest increase in its annual assessment strengthens the case for increasing transparency into the MCCA assessment-calculation process.

In its March 22, 2016 press release, the MCCA announced that its annual assessment to cover to No Fault auto insurance benefits paid to catastrophically injured Michigan auto accident victims would increase by $10 for the 2016-17 fiscal year. And, the way things work, Michigan auto insurance consumers will feel the impact of that increase through a jump in their annual auto insurance rates.

Under the circumstances, consumers deserve to know a lot more about the MCCA’s thinking and rationale for the assessment increase other than the vague, over-simplified and cursory explanation in its press release:

“The assessment increased by $10.00 because assets set aside to pay existing claims produced returns less than anticipated.”

Yes, there was an increase in the deficit between 2014 and 2015 (but the deficit is still well below the billion-dollar deficits that weighed down on the MCCA between 2010 and 2013) and, certainly, deficit reduction may play a role in the MCCA’s decision to increase its annual assessment. But auto-insurance-purchasing public needs to know more about this, i.e., whether and to what extent it was a factor.

Likewise, the auto-insurance purchasing public also needs to know a lot more about the other factors at work in the MCCA’s rate-calculation process. For instance, why was an increase in the MCCA assessment necessary in light of the following facts?:

  • The MCCA’s assessment income exceeded reimbursement payouts by $243 million between 2014 and 2015.
  • The MCCA’s claims reserves increased more than $900 million between 2014 and 2015 – nearly double the increase between 2013 and 2014.
  • The number of ‘reported claims’ to MCCA dropped 13.5% from 2014 to 2015 and the number of “reported claims” for catastrophic injuries were lower in 2015 than they were 6 years previously in 2010.

For a long time, I – along with consumers and some consumer-oriented lawmakers – have called for transparency into the MCCA’s assessment calculation process. This latest move, which will ultimately result in consumers paying more for auto insurance, highlights the urgent need for MCCA transparency.

Hopefully, it will spur lawmakers like Rep. Derek Miller (D-Warren) – and his 53 Democrat and Republican co-sponsors to take action on House Bill 4752, the bill that Rep. Miller sponsored which, if enacted, would impose the following requirement on the MCCA:

“Annually, within 15 days after the [MCCA announces its annual assessment], the [MCCA] shall disclose to the public on its website all data used in computing the premium [i.e., the assessment] and expected losses and expenses …”

To learn more about Rep. Miller’s excellent proposal in HB 4752, please check out my blog post, “New bill would require MCCA to fess up how MCCA fees are calculated.”

How the MCCA works

The purpose of the MCCA is to pay for the medical expenses of catastrophically injured Michigan auto accident victims.

The MCCA raises the funds to make those payments (i.e., reimbursement payouts) by imposing assessments or premiums on all of the auto insurance companies licensed to do business in Michigan. The money generated through the assessment is called the MCCA’s “assessment income.”

Significantly, it’s Michigan motorists – not the auto insurance companies – who bear the financial burden of the MCCA’s assessments. Not only is it common practice for auto insurance companies to pass along the assessment costs to motorists in the form of higher auto insurance premiums, but the Michigan Insurance Code requires it. (See MCL 500.3104(22):

“Premiums charged members by the association shall be recognized in the rate-making procedures for insurance rates in the same manner that expenses and premium taxes are recognized.”

MCCA’s deficit grew by $280 million between 2014 and 2015

Unfortunately, there’s sad news on the MCCA deficit front. After shrinking by $1.4 billion between 2013 and 2014, the MCCA deficit took a turn for the worse between 2014-15.

It grew by approximately $280 million, putting the MCCA’s total deficit at nearly $691 million.

Of course, $690 million is a ton of money. But it’s considerably better than the billion-dollar deficits that plagued the MCCA between 2010 and 2013. Significantly, in the MCCA’s Annual Report for the fiscal year ending June 30, 2015, the MCCA explained that the “primary reasons for the increase” in the deficit were:  Two factors with the reduction in its deficit:

  • “Updated economic assumptions increase MCCA claim reserves.”
  • “Investment performance was less than expected.”

The chart below shows the MCCA deficit trends from 2010 through 2014:

MCCA deficits1, image

(Sources: Michigan Catastrophic Claims Association Annual Report to the Director of Department of Insurance and Financial Services (DIFS) (For fiscal years ending June 30, 2015, June 30, 2014 and June 30, 2013); Michigan Catastrophic Claims Association Annual Report to the Commissioner (For fiscal years ending June 30, 2012, and June 30, 2011))

Note: The actual deficit figures are reported as “Total Deficit” or “Total Surplus” in the “MCCA Financial and Statistical Highlights” section of the MCCA’s Annual Report.

MCCA’s assessment income exceeded reimbursement payouts by $243 million between 2014 and 2015

In 2015, the MCCA’s income from assessments exceeded its reimbursement payouts by $243 million – the second highest amount in the last six years.

MCCA deficits2, image

(Sources: Michigan Catastrophic Claims Association Annual Report to the Director of Department of Insurance and Financial Services (DIFS) (For fiscal years ending June 30, 2015, June 30, 2014 and June 30, 2013); Michigan Catastrophic Claims Association Annual Report to the Commissioner (For fiscal years ending June 30, 2012, and June 30, 2011))

MCCA’s claims reserves increased more than $900 million between 2014 and 2015 – nearly double the increase between 2013 and 2014

The MCCA’s reserves increased by more than $900 million between 2014 and 2015, bringing the MCCA’s total reserves amount to $17,755,489,000. That’s nearly double the increase between 2013 and 2014.

As the chart below shows, the MCCA’s reserves increased $518 million between 2013-14, $918 million between 2012-13 and $1.6 billion between 2011-12.

MCCA deficits3, image

(Sources: Michigan Catastrophic Claims Association Annual Report to the Director of Department of Insurance and Financial Services (DIFS) (For fiscal years ending June 30, 2015, June 30, 2014 and June 30, 2013); Michigan Catastrophic Claims Association Annual Report to the Commissioner (For fiscal years ending June 30, 2012, and June 30, 2011))

The MCCA’s “reserves,” which are identified as “Discounted loss reserves” in the MCCA’s Annual Report to DIFS Director/Commissioner, is the amount of money the MCCA sets aside or saves to use to pay for present and/or future open catastrophic claims.

(*The loss reserves information above reflects reserves from July 1, 1978, date of inception for the MCCA, through June 30 of the years indicated.)

‘Reported claims’ to MCCA dropped 13.5%: Lower than 6 years ago

The number of catastrophic injury claims reported to the MCCA dropped approximately 13.5% from 1,669 in 2014 to 1,443 in 2015. Additionally, “reported claims” were considerably lower in 2015 than they were six years ago when, in 2010, the number of “reported claims” to the MCCA were 1,684. However, “reported claims” did increase by 280 between 2013 and 2014.

The chart below shows the MCCA’s “reported claims” trends for 2010 through 2015:

MCCA catastrophic claims, image

(Sources: Michigan Catastrophic Claims Association Annual Report to the Director of Department of Insurance and Financial Services (DIFS) (For fiscal years ending June 30, 2015, June 30, 2014 and June 30, 2013); Michigan Catastrophic Claims Association Annual Report to the Commissioner (For fiscal years ending June 30, 2012, and June 30, 2011))

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Blog Author Steven M. Gursten
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