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Does Michigan No-Fault Coverage Contribute to Soaring Auto Insurance Costs?

May 20, 2010 by Steven M. Gursten

Personal injury attorney says NO – It’s the bloated and unregulated insurance industry profits

I recently received a reader inquiry regarding my blog, A New Dawn for Car Accident Victims? The blog covered the Michigan Supreme Court’s motion for reconsideration in McCormick v. Carrier, a Flint auto accident case that could restore common sense and fairness to Michigan’s broken auto accident law, Kreiner v. Fischer. The reader, Kristen, believed that Michigan’s auto insurance coverage contributes to soaring insurance rates. The truth is quite the contrary. Below is the note from Kristen and my response.

Keep in mind, whether you’ve been seriously injured, or just have a question about the Michigan No-Fault Law, the personal injury attorneys at Michigan Auto Law can help you get through the confusion and uncertainty an accident brings to your life. I hope the following information gives you some insight as to what’s really going on with automobile insurance in Michigan.

Kristen: Steven, I see your point of view on the overturning of the Kreiner case, but why don’t you ever mention that we have unlimited medical benefits/coverage in Michigan when you are involved in an auto accident, which includes pedestrians and resident household members that are not disclosed on an auto application because they do not have a drivers license? Can you review this in one of your articles? Michigan by far has the best coverage in this area and it contributes to the high cost of auto insurance. I personally think the consumer should be given the option to purchase unlimited medical coverage or elect a different level of protection.

My response: Thank you for your question, Kristin. Many people share your perception that lifetime medical benefits are a driver of soaring auto insurance costs in this state. But, neither lifetime medical payouts, nor pain and suffering “tort” payouts are the reasons behind the high insurance costs we face in Michigan. The reality is that first-party No-Fault insurance benefits (lifetime medical, wage loss, replacement services, mileage, attendant care) and third-party payouts (pain and suffering and excess economic loss) are statistically only very small amounts of the total No-Fault dollar. Total combined payouts on “third-party” or pain and suffering settlements represent literally pennies of the total No-Fault dollar. Lifetime medical does sound expensive, but it is also a very small percent of each actual insurance dollar spent.

How can lifetime medical be so little?

The answer lies in the Michigan Catastrophic Claims Association (MCCA). After an insurance company spends over a certain pre-determined amount, currently $460,000, that insurance company is repaid on the entire claim by the MCCA for all medical paid over the cap. And the total assessment of the MCCA for each resident is only $124.89 per motor vehicle, which is separately assessed and frankly, about the best deal out there in exchange for the guarantee of total protection for all Michigan residents who suffer catastrophic personal injury that will require lifetime medical care and treatment after a motor vehicle accident.

The real driver of costs are the insurance companies themselves. The savings that insurance companies promised Michigan residents — when they spent untold thousands of dollars lobbying the Michigan Legislature in 1995 as Michigan enacted the harshest tort reform laws in the nation — never materialized. In fact, premiums have only increased. You may wonder how this can be, when claims and payouts have fallen so sharply.

And here lies the answer to your question, Kristin. The real reason why we pay so much money for insurance here in Michigan is because our insurance companies have the highest profit margins in the nation, and Michigan is one of the only remaining states in the nation where the insurance commissioner does not have the power to regulate the profits that the auto insurance industry can make.

So, we have a nasty little problem. Insurance companies can charge as much as they want, and in turn are able to make record0breaking profits. Insurance companies can recoup losses they make gambling in the stock market, or paying out claims in other states by charging more in Michigan. The same insurance companies will then use our own premium dollars that we are legally required to spend buying No-Fault insurance to wage a propaganda campaign to convince the public that the reason we have such high insurance premiums in Michigan is because of non-issues like lifetime medical, or lawyers and lawsuits, or anything besides the real reason – bloated and unregulated insurance industry profits.

Hope this helps answer your question. Thank you again for contacting me.

Steven M. Gursten is recognized as one of the nation’s top experts in serious car accident and truck accident injury cases and automobile insurance no-fault litigation. Michigan Auto Law has received the largest reported jury verdict for an automobile accident case in Michigan in seven of the past 10 years, including 2009, according to published year-end verdicts and settlements reports.

Photo courtesy of Creative Commons, by Marco Arment

Related information:

How to Read your Auto Insurance Policy

Michigan Claims Adjuster Tactics

Michigan Car Accident Insurance Settlements

Michigan Auto Law is the largest law firm exclusively handling car accident, truck accident, motorcycle accident and bus cases throughout the state. Call (248) 353-7575 if you’ve been injured in an auto accident, and would like to speak to a lawyer.

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