Today, I want to answer a question I get asked quite often: How would I lower the cost of auto insurance in Michigan? I’ve written a more extensive list here, but let’s start with some fundamental changes needed to address Detroit’s sky high rates.
Solution 1: Transparency on insurance company profit margins
The solution to lowering the cost of auto insurance in Michigan begins with transparency. As I wrote yesterday, to get to the bottom of why Detroit has one of the highest auto insurance rates in the nation, we first have to have the facts. Right now, we have no idea what the profit margins are for the companies that sell automobile insurance in Michigan.
I suspect these insurance companies are wildly profitable, and cutting profit margins to a more reasonable percentage would be the simplest and easiest way to reduce the cost of auto insurance.
Based upon the data from the Michigan Department of Insurance Financial Services, we know Michigan’s auto insurance companies collected $2 billion more in auto premiums in 2011 than they paid out in claims. I wrote about this here.
Former Michigan Insurance Commissioner Jay Angoff wrote that these insurance companies are “highly profitable.” And if that’s not enough, in his July 2014 study, “An Analysis of Profitability and Pricing In the Michigan Auto Insurance Market,” Angoff determined Michigan drivers are paying up to 26% more than they should for auto insurance.
But we don’t have the hard data.
Michigan residents are legally required to purchase car insurance. And we impose very tough civil and criminal penalties when people drive without insurance. So why should insurance companies be legally allowed to charge whatever they want, without providing the data as to why we’re paying so much?
Once we get the hard data, the only fix that that may be needed is to pass a law to empower the Michigan insurance commissioner to regulate excessive profit margins, as insurance commissioners can do in almost all other states.
Such a law would result in the best of both worlds: It would keep Michigan’s No Fault law intact (as the nation’s best auto insurance system), and it would immediately lower rates. We could literally have our cake and it eat it, too.
Solution 2: Eliminate credit scoring
Auto insurance companies can use drivers’ credit scores and credit information as factors in determining how much to charge them for auto insurance. This is called credit scoring. It is legal in Michigan, and it especially impacts people who live in Detroit.
I’ve long said we need to eliminate credit scoring, which is really just legal discrimination that disproportionately impacts minorities and low income people. It is a particularly noxious reason why Detroit’s auto insurance rates are so high.
The practice, which has shamefully been given a legal pass when the Michigan Supreme Court allowed this couple years back, hurts auto insurance consumers in Detroit. Given the economic conditions in the Motor City, Detroit drivers are never going to see any significant price relief so long as Michigan auto insurance companies are allowed to legally use credit-scoring to justify charging that person higher auto insurance rates.
Consider the following facts:
- Detroit has more than twice as many people living below the poverty level than the rest of the State of Michigan, according to the U.S. Census Bureau. Between 2009 and 2013, 39.3% of Detroiters lived “below the poverty” level. During that same period, only 16.8% of the rest of Michigan residents lived below the poverty line.
- Detroit has the highest unemployment rate of the top 50 largest cities in the U.S., according to the Bureau of Labor Statistics. Detroit’s unemployment rate is 23%. The next highest unemployment rate, among the nation’s 50 largest cities, is 16.9%.
Solution 3: Stop early access to police reports by ambulance-chasing lawyers, chiropractors, and others who exploit Michigan’s No Fault medical protections
Ambulance chasers give lawyers who practice personal injury law a bad name and a black eye. Many lawyers who practice personal injury care and want to help people. It is why they choose to practice “shirt sleeve law” and work with people to begin with.
My dad started this law firm in 1960. He passed the Michigan Bar Exam with the highest score of any lawyer who took the bar that year, and he was on the Wayne State University Law School Law Review. He walked away from much better paying “big law” jobs because he liked people and wanted to help them. Ambulance chasers tarnish the entire legal profession, especially the lawyers like my dad who are some of the most noble and kind people I know.
But the problem is the number of lawyers who are illegally soliciting clients, and working with “victim rights” organizations and crooked case managers and chiropractors is growing. I’ve written about how this problem was created. It doesn’t change the fact that it now exists, and it’s a driver of high insurance costs.
What’s happening is lawyers and the people they work with can now target vulnerable auto accident victims by looking up their police reports within hours of a motor vehicle accident, and sending people lawyer solicitation letters and mail packages. Some lawyers go further, calling people who were just involved in automobile accidents at home, or hiring others to do it for them. And still others hire people to go knocking on doors and visiting hospital rooms – despite a new law that prohibits access within the first 30 days after an automobile accident. Let’s be honest, it is beyond ridiculous that some Metro Detroit hospitals have “nurse case managers/runners” camped out in the emergency rooms and walking into patient’s rooms, making referrals to doctors that start racking up big bills and referrals to lawyers.
Tightening enforcement of these existing laws would be a start. Reporting the lawyers who do this to the Attorney Grievance Commission would also be helpful. But the most helpful thing would be to deny access to auto accident police reports for a longer period, such as after the first 90 or 120 days after a motor vehicle accident. This would lower auto insurance prices in cities like Detroit by eliminating a lot of the No Fault insurance fraud. Let me explain how:
Many lawyers engaging in No Fault fraud send their clients to certain doctors, who work up big bills. Then the lawyers take one-third to 50% of the medical bills. These lawyers are making a lot more from the doctor and medical bills in the first-party No Fault case than they could by representing these people in the pain and suffering part of the case, which is the third-party tort case filed against the driver who causes the car accident. To the PIP fraud lawyers, the third-party case is just the gravy. And these lawyers are doing this in volume.
I was interviewed by J.C. Reindl of the Detroit Free Press on the Detroit auto insurance crisis. Reindl touched on PIP fraud, stating “[o]utright fraud is [a] concern” and describing testimony from an insurance investigator about the inner workings of No Fault fraud rings. These rings shamefully involve other Michigan personal injury attorneys, doctors, transportation companies, auto repair facilities and runners.
Our Michigan Auto Law attorneys have been outspoken advocates against PIP fraud, which has likely grown like wildfire in cities like Detroit, because of the access to police reports and the feeding frenzy of these medical/lawyer PIP fraud rings that pounce on auto accident victims.