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Should car insurance companies pay refunds?

December 26, 2014 by Steven M. Gursten

A proposed Michigan law would require insurance companies to have a ‘money-back’ guarantee, requiring them to pay refunds if 80% of premiums are not used to pay claims

As Republican Michigan lawmakers continue their efforts to dismantle Michigan’s No Fault insurance system, I’ve been writing about solutions to improve the system, rather than take away important protections for crash victims and drivers.

One of the ideas I’ve been pushing since 2012 is holding insurance companies accountable for paying claims, by requiring them to issue refunds for premiums that are not used to pay valid claims.
Well, our idea as now been adopted by a lawmaker. This idea would benefit drivers in all states, and hopefully have a dramatic impact on entire auto insurance industry if it’s passed:

Rep. Thomas F. Stallworth III (D-Detroit) wants to make sure Michigan insurance companies pay legitimate auto accident No Fault claims promptly to their insured customers and has proposed a “pay claims or pay refunds” bill, House Bill 5528.

I was first to propose the “money-back guarantee” idea in 2012 when, in a blog post, I called for changing Michigan law to require  Michigan’s No-Fault auto insurance companies to either spend most of their insured customers’ premium dollars on their No Fault benefits or refund their unused premium dollars in the form of rebates. For more information, read my blog post, “Michigan needs an ‘Affordable No-Fault Act’ to prevent price gouging by auto insurance companies.”

Stallworth, too, wants to know: Why should auto insurance companies be exempt from providing what they actually promise to cash-strapped Michigan auto insurance consumers who have valid auto accident claims?

HB 5528 which proposes the following “money-back guarantee” for auto insurers in Michigan:

“[I]f an insurer that writes automobile insurance policies … pays less than 80% of the money it collects as premiums for the policies in a calendar year to pay claims made under the policies in the year, the insurer shall refund the difference between the amount actually paid for claims and the amount that would have equaled 80% to the holders of the policies for the year on a pro rata basis.”

If enacted, Rep. Stallworth’s “money-back” guarantee will provide a powerful incentive for auto insurance companies to both keep prices low and refrain from denying and cutting-off No Fault insurance benefits.

Imagine if auto insurance companies in Michigan actually did what they’re legally supposed to do.

Related information:

How to REALLY improve No Fault and create savings on auto insurance

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