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Cost of No Fault fraud declined $264 million, but where are savings?

June 2, 2014 by Steven M. Gursten

Auto insurance prices increased 25% as No Fault fraud costs drops in Michigan


The cost of No-Fault insurance fraud in Michigan has dropped $264 million?

But where are the savings?

Instead of seeing prices go down, consumers buying No Fault in Michigan have seen prices  increase by 25%.

I’ve written before about how Michigan needs an insurance commissioner that can monitor prices that the insurance industry charges, much as they have the power to do in the majority of other states.  And I’ve written extensively about how the insurance industry regularly takes advantage of consumers in Michigan.

These are important issues.  And they’re issues  that the supporters of so-called No Fault insurance “reform” have yet to address.

Instead, they are trying to limit auto accident victims No Fault insurance benefits and medical care.  But it’s a false choice. We can have the best of both worlds: We can keep the nation’s best automobile insurance system intact, and lower prices for consumers.

As part of the current debate about whether and/or how to change Michigan’s No Fault auto insurance, politicians and auto insurance industry spokespersons have insisted that consumers will save money on auto insurance if the costs of No-Fault fraud are reduced.  And, by the way, I agree.  I’ve also written on the pages of this legal blog about the problems of fraud by lawyers and certain doctors in Michigan, and about the problem of attorney solicitation and other groups contacting injured accident victims and trying to steer them for medical treatment that may be unnecessary.

But the following facts reveal that the fraud issue is more unsubstantiated propaganda that it is a true driver of prices for No Fault:

  • The cost of No Fault fraud dropped by as much as $264 million – and is now estimated at as little as $155 million.
  • The drop resulted from a 62% decline in No-Fault fraud claims reported to the National Insurance Crime Bureau (NICB).
  • During the same time period when PIP fraud claims dropped, the average car insurance rate in Michigan increased by 25%, according to Insure.com.

No-Fault insurance fraud reports drop in Michigan

The number of suspected No-Fault fraud claims (i.e., “Questionable Claims” for “Personal Automobile > Personal Injury Protection”) reported by Michigan auto insurance companies to the National Insurance Crime Bureau (NICB) dropped by 62% from 1,501 to 564 between 2011 and 2012, according to the NICB’s December 16, 2013, “Michigan Questionable Claim Referral” report for 2010-12.

According to the NICB’s “Michigan Questionable Claim Referral” report:

“[q]uestionable claims … are those claims that … insurance companies refer to NICB for closer review and investigation based one or more indicators of possible fraud.”

The NICB’s “questionable claims” data does not reflect the outcome of the suspected fraud claim, i.e., whether fraud was ruled out and the claim was paid by the auto insurer or whether fraud was confirmed.

Cost of No Fault fraud

No Fault fraud costs hundreds of millions of dollars every year, according to the Insurance Institute of Michigan (IIM).

Exactly how much? Well, even the IIM isn’t totally sure.

In a May 2012 position paper, the IIM said the “exposure for no-fault insurance fraud is $426 million.”

Yet, in an editorial in June 2012, the Detroit Free Press reported that the IIM’s Lori Conarton had said that “[m]edical fraud adds an estimated … $250 million a year … to auto insurance costs ultimately paid by consumers …”

Given that the NICB’s data showed 1,501 “questionable claims” concerning possible No-Fault fraud in Michigan in 2011 (the most recent year for which NICB data was publicly available at the time of the statements by the IIM), the average cost of each No-Fault fraud claim is between $283,810 and $166,555.

Michigan car insurance rates increase

The average auto insurance rate in Michigan increased by approximately 25% from $2,013 to $2,520 between 2011 and 2012, according to Insure.com’s annual “Car insurance rates by state” surveys.

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