Latest statement from Michigan Catastrophic Claims Association tells us No Fault is not broken, as some politicians and insurance industry claim
If the Michigan Catastrophic Claims Association (MCCA) is the canary in the proverbial coalmine of No Fault insurance “reform,” then what does the latest pronouncement from the MCCA tell us?
I believe it’s a two-part message:
- Proceed with extreme caution, if at all, in changing Michigan’s No Fault auto insurance system.
No Fault insurance is not the broken, unsustainable system that (some) politicians are claiming.
My conclusions are based on the following noteworthy facts about the MCCA:
- For the first time in six years, the MCCA’s annual per-vehicle assessment did not increase.
- Percentage of catastrophic claims payments for attendant care and residential care dropped.
- Assessment income exceeded payouts, again, and by a larger margin than in previous years.
- Reserves increased, again.
- The deficit shrunk by nearly $1 billion, despite an increase in the amount of money paid out on catastrophic claims and despite an increase in the number of catastrophic claims reported.
For those of you who are unfamiliar with the MCCA, it’s a private, nonprofit association made up of a five-person board (unfortunately, comprised from the insurance industry) who manage the fund that compensates auto insurance companies when a No-Fault claim exceeds $500,000. Auto insurance consumers populate the fund by paying an MCCA assessment, which is a small part of your No Fault insurance premium.
No increase in MCCA assessment
The MCCA assessment did not increase this year.
The MCCA assessment for July 1, 2014 through June 30, 2015 is $186, which is the same amount it was for July 1, 2013 through June 30, 2014, according to the MCCA’s March 20, 2014, and March 27, 2013, press releases.
Notably, until this year, the MCCA’s annual assessment increased every year since the 2009-10 assessment period, according to the MCCA’s “Assessment Rate History.”
MCCA assessments and auto insurance prices
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 MCCA’s payouts to Michigan No Fault insurers to reimburse them for the costs of providing No Fault medical benefits to catastrophically injured auto accident victims.
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.
Attendant care and residential care payments drop
According to the MCCA’s March 20, 2014, press release:
“Payments to full time family or agency attendant and residential care providers comprise approximately 58 percent of claim payments.”
Last year, attendant and residential care comprised 60% of all catastrophic claims payments, according to the MCCA’s March 27, 2013, press release.
MCCA assessment income exceed payouts by large margin – again
The MCCA’s assessment income exceeded its payouts – or reimbursements – on catastrophic claims, again, this past year. And the margin by which it did so was the largest of the last several years.
The assessment income and payout numbers above are reported in the MCCA’s annual reports to Michigan’s Insurance Commissioner:
- “Michigan Catastrophic Claims Association Annual Report to the Director of Department of Insurance and Financial Services (DIFS) – Fiscal Year Ended June 30, 2013”
- “Michigan Catastrophic Claims Association Annual Report to the Commissioner – Fiscal Year Ended June 30, 2012”
MCCA’s claims reserves increases – again
The MCCA’s reserves increased, again, this past year.
The MCCA’s reserves, which are identified as “Discounted loss reserves” in the MCCA’s Annual Statement and Annual Report to the Insurance Commissioner, is the amount of money the MCCA sets aside or saves to use to pay for present and/or future open catastrophic claims.
Discounted loss reserves:
- 2013: $16,336,755,000
- 2012: $15,418,169,000
- 2011: $13,743,306,000
(*The loss reserves information above reflects reserves from July 1, 1978, date of inception for the MCCA, through June 30 of the years indicated.)
Shrinking MCCA deficit
The MCCA’s deficit shrunk this past year by nearly $1 billion, despite an increase in the amount of money paid out on catastrophic claims and despite an increase in the number of catastrophic claims reported.
Last year’s March 27, 2013, press release noted “the MCCA has a $2 billion deficit.”
Yet, the MCCA’s March 20, 2014, press release, the MCCA “has a $1.1 billion deficit.”
More paid out on catastrophic claims
The MCCA reports in its March 20, 2014, press release:
“The MCCA paid out $1 billion … in 2013 for claim costs resulting from catastrophic injuries.”
That’s a $53 million increase over the $947 million in catastrophic claims payouts in 2012 and a $73 million increase over the $927 million paid out in 2011.
More catastrophic claims reported
Catastrophic claims reported to the MCCA increased by 577 between 2013 and 2014.
Between 2012 and 2013, reported claims increased by 1,474.