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MCCA increase (again) raises questions transparency would answer

We’re seeing another No-Fault catastrophic injury fee hike. It’ll result in higher car insurance prices. We deserve to know more about the MCCA assessment

MCCA

With the MCCA announcing a $10 increase — from $160 to $170 for fiscal year 2017-18 — in its annual No-Fault catastrophic injury fee, much more information needs to be disclosed to the public about increases in the catastrophic injury fee assessment.

Sadly, we don’t really need yet another reason for why we need transparency and sunlight for the Michigan Catastrophic Claims Association (MCCA) with  its assessment-calculation process.

But the MCCA gave us one anyway: A $10 increase — from $160 to $170 for fiscal year 2017-18 — in its annual No-Fault catastrophic injury fee.

The MCCA is vitally important. As an auto attorney who helps people who have been catastrophically injured in a car crash, I see first-hand how the MCCA assessment money goes into paying for the No Fault medical bills for my own catastrophically injured clients.

But I also know the MCCA needs to be disclosing much more information to the public about increases in the catastrophic injury fee assessment.

This auto law blog has long argued that transparency and sunlight are desperately needed with the MCCA. With the foxes guarding the henhouse at the MCCA, this blog has also noted the conflict of interest that exists with many of the people at the MCCA who are making these rate increasesand how big jumps in the past are likely politically motivated as a way to pressure No Fault reform. 

These increases in the MCCA’s No Fault catastrophic injury fee affect us all. They translate into higher prices that drivers will pay for car insurance.

This is especially significant now, considering that one study has shown that the MCCA is over-charging on its annual assessments by 15% to 26%.

According to the “Analysis of Profitability and Pricing in Michigan’s Auto Insurance Market,” former Missouri Insurance Commissioner Jay Angoff concluded:

“[T]he annual per-car surcharge assessed by the MCCA and paid by policyholders has been approximately 15% [to 26%] higher than necessary over the long run. A reduction in these surcharges would reduce auto insurance premiums.”

This is the second year in a row for increases in the MCCA assessment and the driving public deserves more of an explanation than what the MCCA said in its March 13, 2017, press release:

“The assessment went up by $10.00 because the estimated cost to pay existing claims increased.”

For instance, why was an increase in the MCCA assessment necessary in light of — or as a result of or in spite of — the following facts?

  • The MCCA’s assessment income exceeded reimbursement payouts by $50 million – $190 million less than in the previous fiscal year.
  • The MCCA’s claims reserves increased $1.7 billion – nearly doubling, again.

If anything good comes out of this recent MCCA assessment increase, hopefully it will be to wake up lawmakers on the need for transparency. Unfortunately, most of the Republicans in the Michigan Legislature who are pushing for so-called auto No-Fault insurance reform are also quite willing to look the other way when it comes to the MCCA and tighter scrutiny of the insurance companies.

But not all lawmakers. Perhaps lawmakers will be sufficiently motivated after this latest in a series of fee assessment increases to take up the excellent MCCA transparency legislation, House Bill 4049, introduced by Rep. Patrick Green (D-Warren), which proposes:

“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 …,” including, but not limited to, the “annual actuarial evaluation” and the “annual assessment reports of [Michigan auto insurance companies]” that were “used in establishing the premium [i.e., MCCA assessment]” as well as “[a]ny explanatory memorandum explaining the various components of the premium and the judgments made to produce the premium [i.e., MCCA assessment].”

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 is 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 assessment income exceeded reimbursement payouts by $50 million between 2015 and 2016

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

However, by 2016, that number had dropped significantly to approximately $50 million.

The chart below shows the MCCA’s assessment income/reimbursement payout trends from 2010 through 2016:

YEAR MCCA Assessment Income MCCA Reimbursement Payouts Income Less Payouts
2016 $1,167,201,000 $1,117,129,000 $50,072,000
2015 $1,320,004,000 $1,076,007,000 $243,997,000
2014 $1,280,988,000 $1,027,030,000 $253,958,000
2013 $1,136,491,000 $983,133,000 $153,358,000
2012 $1,000,776,000 $931,689,000 $69,087,000
2011 $981,455,000 $964,811,000 $16,644,000
2010 $827,971,000 $816,910,000 $11,061,000
Sources: Michigan Catastrophic Claims Association Annual Report to the Director of Department of Insurance and Financial Services (DIFS) (For fiscal years ending June 30, 2016, 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 $1.7 billion between 2015 and 2016 – nearly doubling, again

For the second year in a row, the MCCA’s claims reserves have nearly doubled.

Between 2014 and 2015, the MCCA’s reserves increased by more than $900 million, which was nearly double the increase between 2013 and 2014.

Now, between 2015 and 2016, the MCCA claims reserves jumped to $1,709,875,000, which is nearly twice the increase that occurred between 2014 and 2015.

The chart below shows the trends in the MCCA’s reserves from 2010 through 2016:

YEAR MCCA Reserves Amount of Increase or Decrease
2016 $19,465,364,000 $1,709,875,000
2015 $17,755,489,000 $900,259,000
2014 $16,855,230,000 $518,475,000
2013 $16,336,755,000 $918,586,000
2012 $15,418,169,000 $1,674,863,000
2011 $13,743,306,000 $173,834,000
2010 $13,569,472,000
Sources: Michigan Catastrophic Claims Association Annual Report to the Director of Department of Insurance and Financial Services (DIFS) (For fiscal years ending June 30, 2016, 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.)

The public should know how the MCCA is making these decisions to raise fees

Perhaps this last MCCA fee assessment is warranted. My point is that we just don’t know either way because there is no transparency in how these decisions are being made and the facts and assumptions that are being used by the MCCA in deciding whether, and how much, to raise assessments. These decisions directly impact the public, and so the public should be entitled to know what is behind these fee assessment calculations that we as drivers are required to pay.

The process by which the MCCA makes these critical decisions should be open and transparent, not hidden, from the public.

This entry was tagged Tags: auto insurance, catastrophic injury, MCCA assessment increase, Michigan Catastrophic Claims Association
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