Amidst calls for No Fault “reform” and claims of ‘unsustainability,’ what’s really in the Michigan Catastrophic Claims Fund (hint: billions in reserves)
I was interviewed last week by Lester Graham on National Public Radio about the MCCA. There is an information vacuum that currently exists, in the midst of an insurance industry push for No Fault insurance caps and even some calls for the MCCA to be dissolved. But two of its most recent Annual Reports to the Insurance Commissioner show that the Michigan Catastrophic Claims Association (MCCA) is paying its bills, and it’s got money in the bank:
In 2012, the MCCA’s income from assessments exceeded its payouts on catastrophic claims by $69 million and it had an average annual reserve (which is used to pay present and future catastrophic claims) of $14,243,649,000.
Number like that definitely beg the questions:
- Why does the MCCA insist on causing auto insurance prices to rise by charging higher and higher assessment rates – including a staggering increase last year (coincidentally timed at the same time as the insurance industry push for No Fault reform?
- And why do Michigan’s auto insurance industry lobbyists persist in trying to scare Michigan drivers (and sadly many Republican lawmakers including Governor Snyder) by claiming our No Fault insurance system is unsustainable and the MCCA doesn’t have the money to pay its obligations?
Why is the MCCA fighting so hard to keep the information that would conclusively answer these questions secret from the rest of us?
Maybe I’m wrong about this. But there is only one way to know for sure. It’s time Michigan drivers, residents and lawmakers got some answers so we can make educated decisions on the future of a system of insurance that has served the people of this state remarkably well for 40 years.
And it’s long past the time where the MCCA, the Insurance Commissioner and the insurance industry’s lobbyists at the Insurance Institute of Michigan and the Michigan Insurance Coalition stopped fighting and denying the obvious need for greater transparency at the MCCA.
MCCA income and payouts
As the numbers below show, the amount of money the MCCA collects every year in assessments is clearly enough to cover the amount of money it pays out to reimburse Michigan No Fault insurers for their payouts on catastrophic claims.
Income less payouts:
Assessments are the premiums that the MCCA charges to and collects from each of the No Fault insurers who are authorized to sell auto insurance in Michigan. The assessment income funds the catastrophic-claim reimbursements the MCCA pays to Michigan No Fault insurers.
Significantly, the assessments charged to the No Fault insurers “are generally passed on to auto insurance policyholders” and “are reflected in the auto premiums all Michigan policyholders pay,” according to the MCCA’s website.
That’s why Michigan auto insurance rates always shoot up whenever the MCCA increases its assessment rate.
MCCA’s claims reserves
The graph below shows that the MCCA’s reserves, the amount of money it sets aside or saves to use to pay for present and/or future open catastrophic claims, have been steadily increasing:
Discounted loss reserves:
(*The loss reserves information above reflects reserves from July 1, 1978, date of inception for the MCCA, through June 30 of the years indicated.)
For those of you unfamiliar with the MCCA: It’s a private, nonprofit association made up of a five-person board (comprised from the insurance industry) who manage the fund that compensates auto insurance companies when a no-fault claim exceeds $500,000.
For more information, click here to read a comprehensive analysis of Michigan No Fault reform and the latest developments.