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Consumers may pay MORE for No Fault insurance under HB 4612

April 24, 2013 by Steven M. Gursten

HB 4612 is “the most extreme wish list the insurance industry could come up with”

HB 4612 Michigan No Fault reform

Hidden fees and assessments in Gov. Rick Snyder’s Michigan No Fault “reform” proposal could cancel out promised savings and may end up causing auto insurance consumers to pay MORE for their No Fault policies.

At his press conference last week, Gov. Snyder promised that, under his proposal for reforming Michigan’s No Fault auto insurance system, auto insurance consumers would save $125 per vehicle in “year one.”

But what he neglected to mention is how his proposal, House Bill 4612, also imposes new and possibly even greater costs on consumers buying auto insurance in “year one” and beyond.

Consumers will be required to pay a new “Annual Catastrophic Claims Fee,” which will be calculated using a formula similar, if not identical, to the one used to calculate assessments by the Michigan Catastrophic Claims Association (MCCA). Significantly, this year’s MCCA assessment was $186 and last year’s was $175.

As costs are passed along through higher auto insurance prices, consumers will be required to pay for the new assessment to raise $21 million annually to pay for a newly created “Michigan Automobile Insurance Fraud Authority” and for the existing “Automobile Theft Prevention Authority.”

These hidden fees and assessments came to light yesterday when Rep. Pete Lund (R-36th District), introduced Gov. Snyder’s No Fault Reform proposal in the form of HB 4612.  The House Insurance Committee has scheduled a hearing on HB 4612 tomorrow, April 25, 2013.

Promised savings on auto insurance ‘premiums’ – A better way

Gov. Snyder has now upped his promised savings on auto insurance premiums from $125 per vehicle to $150. But it’s a shame that Gov. Snyder and Rep Lund have chosen to “attempt” to lower auto insurance on the backs of Michigan citizens who will need it most.

Not once has Gov. Snyder – a self-professed “numbers man” – ever looked at the excessive profits that these insurance companies are already making in Michigan (hint: over $2 billion). He has never asked why Michigan is one of the few states that does not give its own insurance commissioner the power to regulate excessive profit margins for a product – auto No Fault insurance – that people are required by law to buy.  Choosing to do this would drop insurance premiums by far more than what Gov. Snyder and Rep. Lund now promise, while keeping the nation’s top No Fault auto insurance system intact.

According to the HB 4612, Michigan auto insurers must file No Fault auto insurance rates for 2014 “that result in a per-vehicle reduction in the annual premium of at least $150.00 …”

Moreover, auto insurers “shall not increase the rates for coverages providing personal protection insurance benefits before January 1, 2015.”

Catastrophic claims fee

The Insurance Commissioner will “set an initial annual catastrophic claims fee” for 2014, which “is imposed on the owner or registrant of each motor vehicle” that must be covered by No Fault auto insurance, according to HB 4612.

The vehicle’s owner or registrant, “not the insurer, is liable for the payment of the fee.”

And, although the Catastrophic Claims Fee “is not part of an insured’s premium,” the fee is collected by auto insurers by including it on their policy invoices and insurers “shall treat the failure to pay a fee … in the same manner as the failure to pay an insurance premium.”

Gov. Snyder’s reform proposal is silent about how the Catastrophic Claims Fee will be calculated for 2014, but the post-2014 fee-calculation formula mirrors the MCCA’s assessment-calculation formula as set forth in MCL 500.3104(7)(d) of the No Fault Law and the MCCA’s Plan of Operation.

Accordingly, if the Catastrophic Claims Fee for 2014 is calculated in a similar manner, then Michigan auto insurance consumers may expect to see a fee in the neighborhood of $186 or $175 (MCCA’s assessments for this year and last, respectively), which would exceed Gov. Snyder’s promised savings by at least $25.

Notably, after the governor’s savings promise expires at the end of “year one,” the Catastrophic Claims Fee will continue indefinitely … coupled with a “charge of $25.00” for five years.

New $21 million annual assessment for fraud and theft authorities – aimed only at consumers, not insurance companies

Through higher rates, Michigan auto insurance consumers will pay for Gov. Snyder’s new $21 million annual assessment to raise funds for the “Michigan Automobile Insurance Fraud Authority” that he proposes to create, and for the existing “Automobile Theft Prevention Authority.”

But what about fraud committed by insurance companies? Sadly, this appears to be directed toward consumers only.  In Michigan, a state without bad faith laws, punitive damages, or even a consumer protection act that can hold insurance company abuses accountable, we now see rampant insurance company abuse. Claims adjusters and insurance companies can choose to quite literally destroy lives without fear of consequences.

As an insurance lawyer, I see incredible harms caused by insurance companies who act without any fear of being held accountable. Claims adjusters withhold medical payments to people who desperately need medical care, and they cut-off wage loss benefits to people who’ve been seriously injured in automobile accidents and who are in desperate need  of money.

I would be the first to say that fraud should not be allowed to exist in any form.  Whether it’s committed by bad lawyers, bad doctors or by bad insurance companies who put profits over peoples’ lives. And it would certainly be money well spent to make sure that fraud perpetrated by the insurance companies is also examined as well.

Driving the wrong way up a one-way street – insurance company wish list too extreme

And this brings me to my sharpest criticism of HB 4612 and of Gov. Snyder.  It is all directed one way.  It represents the most extreme wish list of the insurance industry today.  As a Michigan Auto Law attorney said last week in Michigan Lawyers Weekly:

“There are so many features of this bill that have never been proposed before, I would characterize this as the most extreme wish list the insurance industry could come up with…I could not imagine that any legislator who takes the time to read this and understands the no fault system, could vote for this.”

  • Claims processing of insurance adjusters is not admissible at a trial: “Thus, bad faith denials, or an insurer’s fraud, is inadmissible,” Christensen noted.
  • If the claimant’s claim is excessive or in some respect fraudulent, the court can award the insurer legal fees.
  • Whether a charge is reasonable will be a question of law (judge’s decision). Currently, it is a question of fact (jury’s decision).
  • Reasonable and necessary products, services and accommodations is replaced with “medically appropriate” products, services, or accommodations.
  • In-home attendant care provided by family is limited to 56 hours per week at $15 per hour. Attendant care by some other entity would be limited to 16 hours per day with no 24-hour-a-day provision.
  • It limits home modifications to $50,000: “If you’re in a wheelchair, it is not possible to make an ordinary house accessible for $50,000 or even $100,000,” Christensen said.

The Michigan Automobile Insurance Placement Facility (MAIPF) will charge the new annual assessment to all auto insurance companies authorized to do business in Michigan for the purpose of providing $21 million in annual funding “to cover anticipated costs of operation and administration of the Michigan Automobile Insurance Fraud Authority and the Automobile Theft Prevention Authority,” according to HB 4612.

Michigan auto insurers will do with the new assessment what they always have done and what Michigan law allows them to do with assessments, whether they originate with the Michigan Catastrophic Claims Association or the MAIPF: They will pass along the costs to consumers in the form of higher auto insurance rates.

According to MCL 500.3385: “Any assessments paid by participating [MAIPF] members … may be recouped through a surcharge in the insurers’ rates for automobile insurance policies issued by the member … A rate shall not be considered excessive because the rate includes a factor for recoupment …”

Make your voice heard

Tell lawmakers what you think about Gov. Snyder’s promised savings and the hidden fees and assessments in his No Fault reform plan.

A hearing on HB 4612 is scheduled for Thursday, April 25, 2013, before the House Insurance Committee, which is chaired by the bill’s sponsor, Rep. Pete Lund.

Below are the names of the members of the House Insurance Committee. Their contact information can be found at the Michigan House of Representatives website:

Michigan House Insurance Committee:

  • Pete Lund (R) Committee Chair, 36th District
  • Tom Leonard (R) Majority Vice-Chair, 93rd District
  • Cindy Denby (R) 47th District
  • Kevin Cotter (R) 99th District
  • Ben Glardon (R) 85th District
  • Ken Goike (R) 33rd District
  • Andrea LaFontaine (R) 32nd District
  • Lisa Posthumus Lyons (R) 86th District
  • Aric Nesbitt (R) 66th District
  • Margaret O’Brien (R) 61st District
  • Kate Segal (D) Minority Vice-Chair, 62nd District
  • Ellen Lipton (D) 27th District
  • Theresa Abed (D) 71st District
  • Tom Cochran (D) 67th District
  • Marcia Hovey-Wright (D) 92nd District

For more information, click here to read a comprehensive analysis of Michigan No Fault reform and the latest developments. This resource center also addresses and refutes each point made by insurance industry.

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