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Thoughts on Sunday’s Detroit Free Press story on Detroit’s high auto insurance prices

November 24, 2014 by Steven M. Gursten

Don’t blame No Fault: Focus on reducing costs must be on excessive insurer profits, punishing PIP fraud by lawyers & doctors, reducing number of uninsured drivers, use of credit scoring & combating auto thefts

Detroit auto insurance

J.C. Reindl wrote a great story in Sunday’s Detroit Free Press, “Auto insurance rates put the brakes on Detroit.”  

The only part I take issue with in this otherwise excellent story is this: Don’t blame Michigan’s No Fault auto insurance system for the high auto insurance prices that Detroit drivers have to pay!

How can it be our No Fault system that’s responsible for the high costs of auto insurance in cities like Detroit, when people in some city suburbs pay only half as much?  Everyone has the same No Fault insurance and the same lifetime guarantee of all necessary medical care if someone is catastrophically injured from an automobile accident.

So how can No Fault itself be the reason why people in Detroit pay so much more?

The answer is, it doesn’t. There has to be more to explain the wild price discrepancies between Detroit and the suburbs. Blaming lifetime guarantee of all necessary medical care is just the insurance industry’s line. With respect to what is driving up the costs of No Fault insurance benefits, also known as PIP (personal injury protection) benefits, the facts point us in a different direction altogether.

There are, however, more plausible explanations for why auto insurance is higher in Detroit. In the context of Detroit’s recent announcement of a feasibility study into whether the Motor City can lower auto insurance prices for Detroit motorists by starting its own auto insurance company, Reindl reported what he had learned may be the potential drivers of high auto insurance prices. He wrote:

“The prevailing wisdom is that Detroit’s insurance rates are largely driven by high theft, pervasive fraud and unlimited medical benefits to accident victims under Michigan’s no-fault auto insurance law.”

As I’ve repeatedly stated on the pages of this legal blog – as well as explained in detail based on facts and data – the evidence shows that No Fault medical costs are not what’s driving up auto insurance prices:

  • With its guarantee of necessary and reasonably priced lifetime No Fault medical benefits, Michigan auto insurance is cheaper by at least $100 per year than auto insurance in other No Fault states where the No Fault medical benefits are drastically lower due to benefit caps.
  • Despite claims by the auto insurance industry that No Fault medical claim costs increased 224% over a 12-year period, no similar – nothing even close – was seen in auto insurance prices.

To read more, take a look at “No Fault reform is based on the faulty premise that no fault medical benefit costs are driving auto insurance rates” – Chapter 6 in Michigan Auto Law’s The Auto Insurance Consumers’ Guide To Michigan No Fault Reform & House Bill 4612; and  “Capping No Fault to $10 Million in medical is no guarantee of savings.”

In tomorrow’s blog post, I will discuss the factors that will play into the feasibility of a Detroit-sponsored auto insurance company.

Motor City No Fault insurance fraud

I had two reactions to Reindl’s reporting on what he called “pervasive fraud” pertaining to No Fault PIP claims arising out of Detroit:

  1. How accurate are these reports that No Fault fraud is on the rise in Detroit?
  2. Does this mean investigations, arrests and indictments are (finally) on their way?

Busting No Fault insurance fraud rings

No Fault fraud – just like any type of insurance fraud – is a crime that must be punished.

Reindl writes that “[o]utright fraud is [a] concern” and describes testimony from an insurance investigator about the inner workings of No Fault fraud rings – which shamefully involve other Michigan personal injury attorneys, doctors, transportation companies, repair facilities and runners. It leads me to wonder whether (front page) news stories like this could finally be setting the stage for investigations and indictments of certain attorneys that many of us – and by “us” I mean the  insurance companies and many Michigan auto attorneys all know about – who are committing PIP fraud will follow.

To read more, check out my blog, “After arrests of attorneys, chiropractors and clinic employees for PIP fraud in Florida – is Michigan next?”

Recent changes in Michigan law – of which both I and Michigan Auto Law were strong and vocal supporters – will hopefully start to dampen the PIP abuses that Reindl reports:

“[U]nscrupulous companies have been scouring thousands of police reports for vehicle accidents and referring those involved to certain medical clinics and attorneys, even if the person wasn’t injured.”

In December 2013, Michigan passed an anti-“ambulance chasing” law that imposes jail time and fines of up to $30,000 and $60,000 for “ambulance chasing” lawyers who, through the use of aggressive, intrusive and overreaching mail solicitations, intrude on the privacy of auto accident victims.

In particular, there’s a 30-day “waiting period” after a car accident during which lawyers – or anyone working for or in conjunction with a lawyer or law firm – are prohibited from “directly soliciting” legal business from auto accident victims and/or accessing accident reports to acquire information to be used in a solicitation. The problem as I see it is two-fold:

  1. Many lawyers and others are completely ignoring the 30-day waiting period (and the Michigan Attorney Grievance Commission is so far ignoring these violations).
  2. The feeding frenzy of lawyers and others pouncing on these auto accident victims now is starting on day 31, after the 30-day waiting period has expired.

To read more, take a look at my blog, “BREAKING NEWS: ‘Ambulance chasing’ lawyers In Michigan now face jail & fines up to $60,000.”

‘Pervasive fraud’

Fraud cannot and should not be tolerated. But how pervasive is it, really? Beyond a few specific personal injury law firms that most of us know about already, is the insurance fraud really as pervasive as Reindl writes? In his story, Reindl attributes the following statistics to the National Insurance Crime Bureau:

“A National Insurance Crime Bureau report found that questionable medical claims in Detroit jumped 124% between 2009 and 2011, and that the city was responsible for one-third of all such claims in the state.”

I reached out to the NICB and the organization did confirm the data the Reindl reported.

However, I also learned something else from the NICB: “Personal Injury Protection (PIP)” Medical Questionable Claims have also been on the rise in both Michigan and in Detroit.

This is significant to any discussion about auto insurance prices and No Fault auto insurance because “PIP” benefits is just another word used to describe the No Fault medical benefits that are provided to auto accident victims.

Between 2009 and 2011, PIP Medical Questionable Claims in Detroit increased 114% from 143 to 306, according to the NICB’s July 2, 2012,  “Michigan Questionable Claims” Report for 2009-11.

Meanwhile, PIP Medical Questionable Claims throughout Michigan increased 313% from 335 to 1,382.

That meant that 33% of all of Michigan’s PIP Medical Questionable Claims came from Detroit between 2009 and 2011.

Other ‘high price’ factors

Significantly, Reindl also pointed out to other important drivers of high auto insurance prices in Detroit:

  • “Detroit police have estimated that 60% of all Detroit drivers lack auto insurance …”
  • The “use of credit scores and educational background in setting rates.” I was honored to be interviewed by Reindl on this in his story.  As I said when Reindl interviewed me for the story, “It makes no sense that those people who are least able to afford it are paying twice as much. It means you can legally discriminate against the poor.”

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