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‘Excessive’ auto insurance rates being charged by Michigan insurance companies, study shows

October 13, 2011 by Steven M. Gursten

As changes to No-Fault “reform” laws progress, auto insurance companies are charging “excessive rates,” according to the Michigan OFIS

There is proposed legislation (HB 4936) that aims to take away our most valuable No-Fault auto insurance protections – lifetime medical benefits. I’m sad to report that a Michigan House of Representatives committee has approved major changes to our No-Fault system today. The bill will now to go the full House for a vote.

The proposed “PIP Choice” legislation would give automobile owners the choice to purchase either $500,000, $1 million or $5 million worth of coverage. These coverage amounts are not enough to cover people with catastrophic injuries, and those who have already been seriously injured in car accidents.

This is a shame, especially given there’s absolutely no proof that these changes to our No-Fault law would save policy holders money – like the insurance lobby and conservative lawmakers tout.

My blog below addresses the “excessive” costs we’re being charged for auto insurance, despite the strong possibility of having our invaluable protections taken from us:

I’ve been an insurance lawyer for nearly 20 years, and I’ve seen first-hand how many insurance companies treat injured accident victims in this state. I write a blog sharing some of the things I see, and the stories of what happens to my own clients at the hands of insurance companies. Some readers are inclined to dismiss what I write because I’m a lawyer and I basically sue insurance companies for a living, when they aren’t paying No-Fault benefits that they are legally required to pay, or after a serious auto accident, when I bring a claim against the insurance company of the at-fault driver. These readers say I must be biased or things can’t be as bad as I describe.

This makes the auto insurance study from the Michigan Office of Financial and Insurance Services, which uses words like “excessive” and “potentially excessive” when describing the auto insurance rates that plague Michigan drivers, even more interesting and important.

The study, which was commissioned by the Michigan Office of Financial and Insurance Services, is called “The Competitiveness and Premium Excessiveness of the Home and Auto Insurance Industries in the State of Michigan.”

Study data, which was provided by Michigan auto insurance companies, showed that more than 50 percent of Michigan’s Top 10 auto insurance companies have charged “excessive” or “potentially excessive” rates in 83 percent of Michigan’s 42 auto insurance markets.

Sadly, this comes as absolutely no surprise. You don’t have to be an insurance lawyer to see the effect of this widespread practice in Michigan. As I often remind my readers, Michigan is one of the few states that does not allow its insurance commissioners to regulate insurance company profits and prices.

When no one is charged with watching the hen house, watch out.

Michigan auto insurance companies controlling the market

The Insurance Institute of Michigan’s 2010 IIM Fact Book identifies the Top 10 writers of the Michigan auto insurance as:

1. State Farm Mutual
2. Auto Club Group
3. Citizens Insurance
4. Home-Owners
5. Progressive Michigan
6. Auto Club Insurance Association
7. Allstate Insurance
8. Farm Bureau
9. Auto-Owners

Together, those insurance companies control 69 percent of Michigan’s statewide auto insurance market.

Meanwhile, other prominent Michigan auto insurance companies have charged “potentially excessive” and “excessive” rates in 50 percent and 26 percent of Michigan’s auto insurance markets, respectively.

What is considered “excessive” auto insurance company rates?

Michigan auto insurance companies are deemed to be charging “excessive” rates when the portion of a premium dollar they keep is considerably more than the portion the companies pay out in claims.

For example, a Michigan auto insurance company is considered to be charging “excessive” rates if it pays out less than 50 cents in loss claims for every premium dollar it collects. And, the company is considered to be charging “potentially excessive” rates if it pays out less than 60 cents in loss claims for every premium dollar it collects. Take a look at the summary of the study on competitiveness and premium excessiveness of Michigan auto insurance companies.

Michigan’s former Insurance Commissioner, Linda A. Watters, who commissioned the study of the state’s auto insurance industry, eloquently explained this in the study’s summary the significance of rate “excessiveness”:

“[I]nsureds pay premium principally so they will receive claim payments for covered losses, not so insurers can use most the premium to cover expenses or to build surplus. Traditionally, where a substantial and fair amount of premium dollars are being returned to consumers through payment of losses, rates are considered to be reasonable. …

* * *

“The theory being that if a high percentage of each premium dollar paid is returned to insured individuals as claim payments or claim reserves, this indicates that an insurers isn’t realizing a windfall on the transaction. On the other hand, if a lower percentage of each premium is used for claim payments or reserves for insured individuals, this is an indication that the insurer may be enjoying excessive profits at the expense of its customers.”

Currently, there are several looming, No-Fault “reform” bills that are being spun by the insurance lobby as the solution for saving Michigan insurance policy holders money on their auto insurance premiums. “Let us take away your most important protections, because it will lower your rates,” their PR machine proclaims.

Yet this study shows that insurance companies in Michigan are already raking in the dough and could significantly lower auto insurance premiums and rates for insurance if they stopped charging “excessive” rates to Michigan consumers.

Steven Gursten is recognized as one of the nation’s top insurance lawyers handling serious auto accident cases. He frequently writes about Michigan No-Fault law and is available for comment.

– Photo courtesy of Creative Commons, by Muffet

Related information to protect yourself:

Your Michigan No-Fault benefits

PIP Choice does not guarantee any insurance savings for the policy holder

Michigan’s 6 worst insurance companies

Michigan Auto Law is the largest law firm exclusively handling car accident, truck accident and motorcycle accident cases throughout the entire state. We have offices in Farmington Hills, Detroit, Ann Arbor, Grand Rapids and Sterling Heights. Call (248) 353-7575 for a free consultation with one of our insurance lawyers.

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