Crain’s story about MI auto insurers losing money doesn’t add up: Data show auto insurers’ No Fault PIP coverage premiums exceeded payouts by $750M in 2013
Michigan auto insurance companies took in $750 million more in No Fault PIP coverage premiums than they paid out in claims in 2013, according to data reported and relied on in a recent Crain’s Detroit Business story.
Yet, somehow the Crain’s story missed this blockbuster of a finding and, instead, ended up repeating the auto insurance industry’s talking points that Michigan insurers are struggling to make ends meet:
“[D]espite premiums that are the highest in the country, auto insurers aren’t even making money on auto insurance,” based on the paper’s analysis “of industry data” on “total premium dollars collected” versus rising “medical costs.
I don’t know how or why Crain’s came to this erroneous conclusion.
It had access to all of the data from the National Association for Insurance Commissioners (NAIC) and the Michigan Catastrophic Claims Association (MCCA) he needed to connect the dots and reach the correct conclusion — which is that insurers are clearing hundreds of millions of dollars on No Fault coverage.
Second, in my comments to the reporter for the story, I told him that, contrary to the impression they’re creating for the media and the public, Michigan auto insurers are reaping the fruits of selling insurance in Michigan:
“In Michigan, the auto insurers have this cartel-like, wonderful business where we’re required by law to purchase no-fault (coverage) but Michigan’s insurance commissioner doesn’t know what the profit margin is of the companies selling it. I have a feeling that they’re not losing money.”
The Crain’s headline was misleading.
Instead of the headline they used for the story:
“How Michigan’s auto insurance premiums became the highest in the country”
It would have been more like:
“Michigan auto insurance companies clear $750 million on No Fault coverage, but want more.”
Here’s why the available data confirms the accuracy of the latter rather than the former:
- Michigan auto insurance companies collected $2,947,565,198 in No Fault premiums in 2013 (the most recent year for which data is publicly available).
- Michigan auto insurers paid out a net total of $2,196,639,703 on No Fault benefits claims (i.e., the gross total of $3,196,639,703, as reported to the NAIC, less the $1 billion in reimbursements from the MCCA, which is not reported to the NAIC).
- Thus, the amount by which No Fault premiums exceeded No Fault payouts in 2013 was $750,925,495.
The chart below further reflects that available data, which, if Crain’s had analyzed it thoroughly, would have shown that Michigan auto insurers are bringing in hundreds of millions of dollars more in No Fault premiums than they’re paying out in benefits — thereby refuting Crain’s claim that they “aren’t even making money on auto insurance.”
| Coverage | Premiums collected (“Earned premiums”) |
Payouts on benefits (“Losses incurred”) |
MCCA reimburse- ments to auto insurers |
Amount that premiums exceeds payouts |
|---|---|---|---|---|
| No Fault PIP (“Personal Injury Protection”) | $2,947,565,198 | $3,196,639,703 | $1 billion | $750,925,495 |
With respect to the MCCA reimbursements, Michigan’s No Fault Law provides that the MCCA will provide 100% reimbursement to auto insurers for any payments of benefits that exceed $550,000. Significantly, the funds that the MCCA uses to pay the reimbursements to the insurers are ultimately supplied by and paid for by drivers and consumers — not the insurers.
(Sources: Crain’s Detroit Business, “How Michigan’s auto insurance premiums became the highest in the country,” October 22, 2017 (relying on data from the National Association of Insurance Commissioners); National Association of Insurance Commissioners (NAIC), “Auto Insurance Database Report 2013/2014,” January 2017): “Personal Injury Protection 2011-2013,” “Total Business,” “Earned Premiums” for 2013 (page 107) and “Incurred Losses” for 2013 (page 108); Michigan Catastrophic Claims Association, “MCCA sets 2014-2015 Insurance Company Assessment,” March 20, 2014, press release)
How did the Crain’s story get it so wrong about PIP coverage premiums and payouts?
In its chart at the top of the story, Crain’s uses NAIC data to document that No Fault “personal injury protection” premiums were a little under $3 billion for 2013 whereas payouts were a little above.
That generally matches up with the NAIC “Auto Insurance Database Report” data in the chart above.
Then, later in the Crain’s story, the reporter writes:
“The insurance claims data analyzed by Crain’s do not account for the medical costs of injured drivers paid by the Michigan Catastrophic Claims Association, which assesses all insured vehicles a $170 annual fee to cover long-term care costs exceeding $550,000.”
Unfortunately, this is the dot that Crain’s failed to connect for readers, and, in failing to do so, Crain’s stopped short of delivering to its readers a full and accurate understanding of the premiums and payouts data reported in its story.
Why?
Because, in 2013, the MCCA paid $1 billion in reimbursements to Michigan auto insurers for “the medical costs of injured drivers:
“The MCCA paid out $1 billion … in 2013 for claim costs resulting from catastrophic injuries.” (Michigan Catastrophic Claims Association, “MCCA sets 2014-2015 Insurance Company Assessment,” March 20, 2014)
Consequently, the data that Crain’s did “not account for” in its analysis reduced net total payouts by $1 billion and, thus, revealed that No Fault premiums exceeded payouts by $750 million.
Michigan car insurance companies are not hurting on No Fault PIP coverage
No Fault PIP coverage is not the only line of Michigan auto insurance where insurers are raking it in.
As I pointed out in my blog post, “No-Fault reform won’t lower high collision insurance costs”:
“Michigan auto insurers collect $330 million and $150 million more in premiums for collision insurance and comprehensive insurance than they pay out in benefits.”
That means that on just No Fault PIP, collision and comprehensive, Michigan car insurance companies are taking in more than $1.2 billion in premiums than they’re paying out in benefits.
Importantly, Mr. Livengood not only supports this point, but, in doing so, further undermines his own claim that auto insurers “aren’t even making money on auto insurance …”
Specifically, buried in two of the final three paragraphs of his story, he writes:
“Michigan’s auto insurance companies collectively posted annual profits in all three of those categories [collision, comprehensive and bodily injury] in the 14 years of publicly available reports analyzed by Crain’s. In 2010, for example, the industry reported an overall loss of $317 million on personal injury protection — at a cost of $61,000 per claim — while posting an overall $384 million profit. Before taxes and overhead, profits from collision coverage alone topped $454 million that year, the auto insurance data shows.”
Nice work if you can get it.
