Michigan Governor Signs Order Creating New Insurance Department

In his “State of the State” address in mid-January, Michigan Gov. Rick Synder recognized the importance of the insurance industry in the state, calling for the creation of a new insurance department and elevating the fight against insurance fraud, and expressing his support for reform of the state’s auto insurance system.

Snyder, who is beginning his third year as governor, said in an announcement released by the governor’s office that the new department will “emphasize consumer protection while helping to create a climate that allows the insurance and financial services industries to thrive. The industries are critical to Michigan, employing more than 150,000 residents and generating more than $9 billion in annual payroll.”

Snyder also has proposed creating an Insurance Fraud Prevention Authority, which would “partner with state and local law enforcement and the insurance industry to provide education, training and enforcement programs to reduce incidents of insurance fraud.”

The governor proposed funding the authority through a $2 per vehicle assessment on insurance companies.

The Michigan Insurance Coalition (MIC), an industry trade group, commended Gov. Snyder’s initiatives and praised him for recognizing the impact the insurance industry has on the state.

National insurance trade group, the Property Casualty Insurers Association of America (PCI), also lauded Snyder for making insurance issues a high priority.

PCI welcomes the governor’s “call to elevate the Office of Financial and Insurance Regulation (OFIR) into a department-level agency within state government. This is further evidence of his commitment to creating a positive insurance environment which protects consumers and promotes economic development and job growth,” said PCI Regional Manager Jeffrey Junkas.

Insurance is currently regulated in Michigan by the Office of Financial and Insurance Regulation (OFIR) led by Commissioner Kevin Clinton. The OFIR is a division of the Department of Licensing and Regulatory Affairs.

Clinton has been tapped to lead the new insurance department.

No-Fault Reform

Michigan is the 10th most expensive state in the nation for auto insurance, with the average claim cost in Michigan increasing 81 percent from 2004 to 2012, according to information from the governor’s office.

“In terms of no-fault, in terms of claims coming in, the severity of claims, we far exceed every other state in how expensive our claims are. The average claim in Michigan is $44,000. The next two states are $17,000 and $10,000, and that leads to high auto insurance costs for people, our citizens, our customers and we have three of the top ten most expensive cities for auto insurance,” Snyder said.

Those three cities are Detroit (1), Novi (6) and Muskegon (9), he added.

Both MIC and PCI praised Snyder’s support for auto insurance reform.

“Michigan is the only state that mandates unlimited, lifetime medical benefits for auto accident injuries,” PCI’s Junkas said. “This ‘one-size fits all’ system is expensive, has few cost controls and does not provide any incentives for thrift.”

“We are appreciative and encouraged that the Governor recognizes that Michigan’s No-Fault system is a runaway train that needs reform now before it goes off the cliff and future generations of Michigan drivers are left holding the tab,” said MIC Chair Kurt Gallinger. “… With a fair, reasonable cap on medical coverage, limiting reimbursement to medical providers to what they’ve agreed to accept from other private insurers, and a crackdown on insurance fraud, Michigan’s No-Fault insurance system can be not only be saved but once again be affordable for the average family.”

According to the MIC:

• Michigan is the only state in the nation mandating unlimited medical coverage (PIP) for auto accidents.
• Michigan auto insurance rates are 20 percent to 35 percent higher than neighboring states.
• The average No-Fault (PIP) claim has increased by 324 percent in the past 12 years rising to $44,138 in 2012.
• The Michigan Catastrophic Claims Association (MCCA) driver fee has increased from $5.60 per vehicle in 1998 to $175 per vehicle in 2012 – a 3,100 percent increase. Not withstanding, the MCCA has a $60 billion unfunded liability.
• Medical providers routinely charge patients covered by No-Fault 300 – 400 percent more than patients covered by other private insurance for the same procedure.
• 20 percent of Michigan drivers are driving uninsured vehicles.