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Car insurance companies didn’t get their way so Michigan consumers will have to pay $40 more per vehicle

August 1, 2016 by Steven M. Gursten

MI-based auto insurers – Auto-Owners, AAA and Frankenmuth Insurance – plan to retaliate for repeal of their $80 million tax credit by vindictively raising prices that drivers pay for insurance


“We didn’t get our way, so you’re going to have to pay.”

I’ve often compared the auto insurance industry in Michigan to a cartel. And when a cartel that is used to charging “highly profitable” auto insurance premiums to consumers doesn’t get its way – especially on a product like auto insurance, a cartel simply jacks up the price that it makes others pay.

That’s exactly what Michigan-based car insurance companies are doing to consumers in response to the recent repeal of the inadvertently created “insurance company” tax credit that was costing Michigan taxpayers approximately $80 million annually and that didn’t stop car insurance companies from increasing prices by more than $200.

In her July 27, 2016, story, “Michigan auto insurance rates go up in October,” the Lansing State Journal’s Alexander Alusheff reported:

“In October, an estimated 2 million Michigan drivers can expect to pay $40 more per vehicle for their auto insurance. Auto insurers blame the rate increase on the removal of an $80 million tax credit from the state’s 2016-2017 budget. State lawmakers say the tax credit was unintentionally created in 2012 when they changed the organization that managed the auto insurers’ reimbursement fund, which took money out of the general fund. The rate increase only affects customers of Michigan-based auto insurers, such as Auto-Owners, AAA or Frankenmuth Insurance. Michigan-based insurers provide service to one-third of Michigan drivers. The tax credit was never available to out-of-state insurers, such as State Farm.”

Car insurance industry’s anti-consumer sentiment on full display

Of all the ludicrous things I’ve seen during my 20-year legal career as an insurance law attorney, this is one of the most outrageous.

Let’s be clear about what’s going on here.

The so-called “insurance company” tax credit:

  • Was never intended to be created and was created inadvertently.
  • Was costing consumers approximately $80 million annually.
  • Never resulted in savings for consumers – instead, during the time that auto insurers were allowed to take advantage (seldom does the full meaning of that expression apply with such force as it does in this case) of the tax credit, Michigan car insurance prices increased by more than $200.

Where is the Insurance Commissioner when we need him?

If ever there was a situation that screamed out for Michigan’s Insurance Commissioner to get involved in the regulation of car insurance prices, this is that situation.

Assuming that Auto-Owners, AAA and Frankenmuth Insurance file for their rate increases (as the Lansing State Journal has reported they will), here are a few of the reasons that the Insurance Commissioner should reject the filings:

  • Losing a tax credit that never should have been created, that cost taxpayers $80 million and that never saved consumers money is not a legitimate reason to increase car insurance prices.
  • The proposed rate increase has nothing to do with and is unrelated to any changes in risk, losses, adjustment expenses and/or the level of insurance coverage being provided.

No savings from ‘tax credit’ – only higher auto insurance prices in Michigan

All during the debate over and the actual passage of the repeal of the so-called “insurance company” tax credit (which was inadvertently created when the Legislature shifted control of the Michigan Assigned Claims Plan from the publicly-elected Secretary of State to the insurance-company-run Michigan Automobile Insurance Placement Facility), the auto insurance industry’s anti-repeal propaganda consisted of essentially the following message:

We’ll have to raise car insurance prices for consumers if the tax credit is repealed because the tax credit allowed auto insurers to pass along savings to consumers.

The only problem with that message is that it wasn’t true.

Not only is there no evidence of any car insurance consumer saving money as a result of the tax credit (least of all Rep. Al Pscholka (R-Stevensville) – the driving force behind the repeal – who the LSJ reported is “a customer of [a] Michigan-based auto insurer” and who “doesn’t remember receiving credit or paying lower rates”), but the verifiable evidence is that auto insurance prices have increased during the time that auto insurers have had the tax credit available to them.

As I noted in a blog post about the tax credit repeal when it was still in the proposal stage:

“Since 2013, when the tax credit became available to Michigan auto insurers, the price that consumers pay for auto insurance has increased $218. According to Insure.com’s annual “Car insurance rates by state” study, Michigan’s average car insurance premium went from $2,520 in 2013 to $2,551 in 2014 to $2,476 in 2015 to $2,738 in 2016.”


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