With a $1.4 billion deficit reduction, increased reserves, income exceeding payouts by $253 million, lower reported “cat fund” injury claims and a study showing assessments have been ‘higher than necessary,’ the MCCA should reduce its assessments
A quick and easy way for Michigan drivers to save money on auto insurance would be for the Michigan Catastrophic Claims Association (MCCA) to reduce its annual per-vehicle assessment.
And now is the perfect time.
Currently, the MCCA’s assessment is $186, where it has remained for the past two fiscal years.
Here’s my argument on why the MCCA assessment should be reduced for the 2015-16 fiscal year. I’ll start with the MCCA’s financial news as reported in its “Annual Report to the Director of Department of Insurance and Financial Services (DIFS) Fiscal Year Ended June 30, 2014.”
Specifically, the MCCA reported the following (and yes, it’s all good news):
- The MCCA’s deficit shrunk $1.4 billion between 2013-14. (Yes, that’s a “b” as in billion!)
- The MCCA’s claims reserves increased more than $500 million.
- The MCCA’s assessment income exceeded reimbursement payouts by $253 million – An increase of more than $100 million.
- Reported claims are lower than five years ago.
Tomorrow, I’ll expand on these key points, but for today, the point is that none of these numbers are in dispute. These are numbers that we can use now to justify lowering the MCCA assessment for everyone.
Another factor that should play into the MCCA’s assessment calculation is the July 2014 study from former Insurance Commissioner Jay Angoff, “An Analysis of Profitability and Pricing In the Michigan Auto Insurance Market,” showing that the MCCA has been overcharging on its assessments:
“[O]ver the long run,” and, especially, between 2004 and 2012, the MCCA’s assessments have been 15% to 26% “higher than necessary.”
For more about the study’s finding of overcharging by the MCCA, please check out my blog post, “Michigan drivers paying 26% more than they should for car insurance.”
Make no mistake, I’ve speculated that the spike we saw in the MCCA assessment was politically motivated, and tied into a concerted push by the insurance industry to dismantle many of the legal protections that drivers have with No Fault auto insurance. The system is clearly broken, with the insurance industry overseeing the MCCA, a situation I’ve compared to the foxes guarding the hen house the pages of this blog. We know many Republicans are still saying they would like to see No Fault insurance “reform” in this state in 2015, and we know the insurance industry still sees an opportunity to increase profit margins.
Now, with mid- to late-March approaching – when the MCCA typically announces the assessment for the upcoming fiscal year – it will be interesting for consumer advocates and attorneys to see how the MCCA’s consideration of these financial numbers will result in a lower MCCA assessment, and thus, increased savings for consumers.
A primer on How the MCCA works
The purpose of the MCCA is to pay for the medical expenses of catastrophically injured automobile accident victims.
The MCCA raises the funds to make those payments (i.e., reimbursement payouts) by imposing assessments or premiums on all of the auto insurance companies licensed to do business in Michigan. The money generated through the assessment is called the MCCA’s “assessment income.”
Significantly, it is Michigan motorists – not the auto insurance companies – who bear the financial burden of the MCCA’s assessments.
Not only is it common practice for auto insurance companies to pass along the assessment costs to motorists in the form of higher auto insurance premiums, but the Michigan Insurance Code requires it. (See MCL 500.3104(22): “Premiums charged members by the association shall be recognized in the rate-making procedures for insurance rates in the same manner that expenses and premium taxes are recognized.”)