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Debunking common misconceptions about the high cost of Michigan car insurance

March 17, 2015 by Steven M. Gursten

Michigan’s car insurance prices are among the highest in the nation. For some people, especially in cities like Detroit where more than 50% of the drivers are estimated to be driving uninsured, the choice comes between putting food on the table and insuring your car.

It doesn’t have to be this way. I recently wrote a comprehensive series with my ideas on how to lower Michigan’s auto insurance prices. In the series, I delved into why the prices are so high, from my experience as an auto accident attorney.

Last week, I received a comment from a concerned reader. He believes capping No
Fault insurance benefits would be the way to pay less. This is a common misconception, and it’s fueled by the insurance industry, which aims to “reform” our No Fault system by capping benefits so it can save buckets of money by paying out less catastrophic injury claims with lower limits.

Below is my response to the reader:

Q. I understand this is important to have for tragic events, but we are forcing people to choose between eating and having insurance. Why do we have unlimited, lifetime benefits? If we could place a reasonable cap on benefits it would help. Why is there so little transparency in this ? We should be able to see how much went to legal fees, court costs, and to beneficiaries. Steve

A. Thank you for your comment. With all due respect, the MCCA assessments are not the reason Michigan auto insurance prices are too high for some drivers. The MCCA assessment is your annual, per-vehicle charge that’s part of your auto insurance. This year, it’s $186 per vehicle.

But the MCCA assessments comprise only a relatively small portion of a driver’s total auto insurance bill. The dollar amount of the other 83% of the bill is decided exclusively by – and is completely under the control of – the auto insurance companies.

Michigan No Fault is not the “blank check” system that the auto insurance industry misleadingly portrays it as being. Speaking of “blank checks,” however, the real blank check seems to be the check the insurance industry in Michigan has written to itself. There is no reason industry profit margins should be among the very highest in the nation, or why our own insurance commissioner cannot regulate unreasonably high profit margins (as insurance commissioners have the power to do in many other states). I believe lawmakers should look more closely at the balance sheets of Michigan’s auto insurance companies. As I wrote in a 2013 Detroit Free Press guest commentary:

“Michigan auto insurance companies collected more than $2 billion more in auto premiums in 2011 than they paid out in claims. They brought in about $6.8 billion in private passenger and commercial auto premiums and paid out some $4.7 billion in losses on private and commercial auto claims … Michigan auto insurers pocketed the difference. That’s more than $2 billion in unused premiums in 2011 for the trouble of selling a product (auto no-fault insurance) that consumers in this state are required by law to purchase.”

When the auto insurance companies are collecting nearly $2 billion more than they’re paying out in claims for their insured customers, it is unjustified and unwarranted for lawmakers to try to lower auto insurance prices by dismantling No Fault and/or capping No Fault benefits. Under the circumstances, what is needed is improved regulations to stop auto insurance companies from charging “excessive” prices as well as to monitor the reasonableness of auto insurance company profits.

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