On June 29, 2016, Michigan eliminates the auto insurance company tax credit (giveaway)
How in the world will Michigan’s auto No Fault insurance companies ever survive without an $80 million tax credit they were never supposed to have in the first place?
There’s been a lot of squealing from the auto insurance industry and its many lobbyists about the prospect of eliminating the unintentionally “created” $80 million tax credit for auto insurers that began in 2013.
Somehow, I think they’ll do just fine. Actually, if we compare the profit margins of Michigan’s auto No Fault insurance companies to the profit margins they make in other states (states where insurance commissioners have the power to regulate unreasonably large profit margins), I think they’ll do more than fine. Just like they always have in Michigan.
After all, long before the shakeup over who controls the Michigan Assigned Claims Plan – shifting from the Secretary of State to the auto insurance-industry-dominated Michigan Automobile Insurance Placement Facility – and the resulting creation of a theretofore non-existent tax credit for MACP assessment payments, Michigan’s auto insurance companies were having no problems staying “highly profitable.”
Rare instance of the insurance industry being turned away from the public trough
The auto insurance industry’s protestations are glossing over some pretty important facts. Here are some things people should know about the insurance company tax credit:
- It is costing Michigan tax payers approximately $80 million annually.
- In its June 3, 2016, “Legislative Analysis,” the House Fiscal Agency concluded that “insurance company tax revenue [to the state’s General Fund] would increase by approximately $80 million under the bill[s] for FY 2016-17 and subsequent years, corresponding to the amount of decreased revenue resulting from” the 2013 change in the law that inadvertently “created” the auto insurance company tax credit. Additionally, in its June 7, 2016, “Bill Analysis,” the Senate Fiscal Agency concluded that “the combined increase in General Fund revenue between FY 2015-16 and FY 2016-17 as a result of the bills … would total approximately $140.0 million.”
- It has not resulted in any decrease in the price of auto insurance for consumers (in fact, according to Insure.com, auto insurance prices in Michigan have increased approximately $218 since 2013, when auto insurance companies first started taking advantage of the tax credit).
- Even without the tax credit, auto insurers can still get their money back for the assessment payments they make into the Michigan Assigned Claims Plan by using the Insurance Code’s “recoupment” provision which allows insurers to pass along the assessment costs to consumers in the form of higher auto insurance prices.
To see my full analysis of how Michigan’s No Fault auto insurance companies were trying to exploit the tax credit for their own – and only their own – financial gain, please check out my blog post, “Are auto insurance companies having their cake and eating it too with MI Assigned Claims Plan assessments?”
Car insurance tax credit is now officially repealed. And it’s about time!
If insurance attorneys like myself, consumer protection advocates, and those rare lawmakers who are not being completely manipulated by Michigan’s powerful auto insurance industry thought they were squealing before, then hold on…because my hunch is they’re really going to squeal now.
On June 29, 2016, Gov. Snyder signed into law House Bills 5457 and 5458, which will eliminate the car insurance company tax credit. They are Public Acts 277 and 278 of 2016, respectively.
Specifically, the change in the law will limit how much of the tax credit that auto insurers can claim in the 2016 tax year, but the change will permanently prohibit auto insurers from making any use of the tax bills staring in the 2017 tax year.
The law (MCL 208.1237(3) of the Michigan Business Tax as amended by HB 5457 and MCL 206.637(3) of the Income Tax Act as amended by HB 5458) will now read:
- “For the 2016 tax year only, an insurance company shall only include in the calculation of a credit under this section 35% of the amounts paid to the Michigan automobile insurance placement facility that are attributable to the assigned claims plan approved under chapter 31 of the insurance code of 1956, 1956 PA 218, MCL 500.3101 to 500.3179.”
- “For tax years beginning on and after January 1, 2017, an insurance company shall not include in the calculation of a credit under this section amounts paid to the Michigan automobile insurance placement facility that are attributable to the assigned claims plan approved under chapter 31 of the insurance code of 1956, 1956 PA 218, MCL 500.3101 to 500.3179.”
The Michigan Assigned Claims Plan (MACP) assigns uninsured Michigan auto accident victims (so long as they weren’t driving their own uninsured vehicles) to auto insurance companies for the payment of Michigan No Fault benefits, including medical expenses and wage loss benefits.
By imposing annual assessments on all of the auto insurance companies doing business in Michigan, the MACP raises the funds needed reimburse auto insurers for benefits payments on “assigned” claims.
Don’t shed tears for Michigan’s auto insurance industry
Let’s remember, there is no “free market” to Michigan’s auto insurance industry. It is more akin to a cartel, in that Michiganders must purchase auto No Fault insurance under penalty of both criminal and civil penalties, but there are no protections for Michigan consumers when these insurance companies price gouge. Again, Michigan is one of the only states that requires automobile owners to purchase insurance, but does not give our insurance commissioner the power to evaluate when the profit margins that these insurers are making on resulting No Fault auto insurance premiums are too high.
It’s a pretty good gig if you can get it. People have to buy your product and there’s no oversight or regulation on how much money you can make selling it.
And when people complain about the high price of auto insurance in Michigan, these insurance companies blame the auto accident attorneys, even though third-party tort payouts for injuries and pain and suffering lawsuits from car accidents are literally pennies on the dollar.
They’re laughing all the way to the bank.