The Michigan Catastrophic Claims Association is $2 billion in the red
If you had a business and the people whom you entrusted to run it mismanaged it so badly that it was operating at a $2 billion loss, what would you do?
You’d fire those people, right?
That’s exactly what’s happened to the Michigan Catastrophic Claims Association (MCCA), as its Board of Directors have watched the MCCA rack up a $2 billion deficit.
And talk about conflicts of interest and letting the foxes guard the hen house.
The Board of Directors is comprised of five of the state’s largest for-profit auto insurers and the Insurance Commissioner R. Kevin Clinton, who previously was the head of one of the state’s largest and most profitable medical-malpractice insurance companies.
These same insurance companies are now using the MCCA deficit – that they created – as part of the push to change the state’s auto No Fault laws.
And by putting the MCCA in a position where its liabilities exceed its assets by over $2 billion, the MCCA’s Board has done something even worse. They’ve violated their fiduciary duty to the state’s most catastrophically injured automobile accident victims. These people are now in jeopardy of losing critically necessary lifetime medical care. The MCCA, by the Board of Director’s mismanagement, may be unable to continue providing the medical reimbursement that doctors, hospitals, and the state’s auto insurers depend on when paying catastrophic medical injury claims in excess of $530,000 for auto accident victims.
The auto insurance companies who allowed the MCCA to go so deep “in the red” are some of the most skilled, profit-making capitalists in history who, when it comes to managing their own businesses, have no problem staying “in the black.”
Technically speaking, the Board cannot be “fired” because its composition is dictated by Michigan’s No Fault Law (see MCL 500.3104(9), (11) and (13)).
However, the Board’s “asleep at the wheel” financial mismanagement reaffirms the urgent calls for MCCA “reform” (greater transparency and accountability) voiced by the public and leading lawmakers such as Rep. Phil Cavanagh (D-Redford Township) and Sen. Glenn S. Anderson (D-6th District).
MCCA’s billion dollar deficit
In press releases from the MCCA and the Insurance Institute of Michigan, the MCCA’s deficit is frequently described as “a $2 billion deficit” or “an estimated $2 billion deficit.”
However, the actual figures paint a slightly different picture. Below are the MCCA’s deficits in recent years (according to the MCCA Annual Reports to the Insurance Commissioner and the Commissioner’s Financial Examinations of the MCCA):
Year MCCA’s deficit
Who pays for the funding used by the MCCA for catastrophic claims?
Ultimately, of course, it’s us. Michigan drivers.
To raise the funds that it uses to “reimburse” Michigan No Fault auto insurers for the catastrophic injury claims that they pay in excess of $530,000, the MCCA charges “premiums” or “assessments” to all of the more than 700 auto insurers authorized to do business in Michigan.
Although the MCCA assessments are technically charged to Michigan auto insurance companies, it is the Michigan auto-insurance-buying public that gets stuck with the tab.
Assessment costs “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 and press releases.
That’s why Michigan auto insurance rates go up when the MCCA increases its assessment rates.
Michigan’s Insurance Commissioner, R. Kevin Clinton, Director of the Department of Insurance and Financial Services (DIFS) in a June 10, 2013, document, entitled “Michigan Catastrophic Claims Association (MCCA),” concurred:
“Your auto insurer is responsible for, and pays, the MCCA assessment. However, the cost is often passed on to policyholders. Some insurance companies include the MCCA assessment in the Personal Injury Protection (PIP) portion of your insurance premium. Other companies sometimes list this as a “statutory assessment” or “MCCA assessment” on the declarations page of your policy.”
(See also MCL 500.3104(22): “Premiums [i.e., assessments] 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.”)
Who runs the MCCA?
Here comes the dastardly part where everything breaks down. Somehow we have a system where the auto insurance companies are entrusted with running the MCCA.
And that makes many of its decisions – including two very significant rate assessments at the same time that the insurance companies that comprise its board – extremely suspicious.
And it makes it downright troubling that the MCCA has opposed so vehemently any efforts at transparency to see where and why these rate increases are happening.
According to the June 10, 2013, document from Insurance Commissioner Clinton and the DIFS:
“The MCCA has a Board of Directors that consists of 5 representatives from insurance companies, appointed by the Director of the Department of Insurance and Financial Services (DIFS) according to statute.”
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“The insurance companies appointed to serve on this board are among the top writers, by volume of business, of auto insurance in Michigan.”
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“The Director of DIFS serves as an ex-officio member of the board without a vote.”
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Additionally, the MCCA’s “Standing Committees,” including the “Actuarial Committee” which advises the Board of Directors about the assessments whose increases cause consumers’ auto insurance prices to increase, are also populated exclusively with Michigan auto insurance companies.
Through June 2012, the MCCA’s Board of Directors was comprised of representatives from the following Michigan auto insurers (according to the MCCA website’s “Board of Directors and Standing Committees” page):
- Auto Club Insurance Association
- Auto-Owners Insurance Company
- Citizens Insurance Company of America
- Farmers Insurance Group
- State Farm Mutual Automobile Insurance Company