Lawmakers Likely to Try Again to Reform Michigan’s No-Fault System

March 23, 2015 by

Michigan has some of the highest auto insurance rates in the country and auto insurance rate hikes there were higher than those in any other state over the past two years, according to the insurance consulting firm, Perr&Knight. Some see Michigan’s generous no-fault system as the main driver of its costly auto insurance rates and would like to see legislative changes aimed at cost control.

The Insurance Information Institute said the state ranked seventh for the highest auto rates in 2012, with the average expenditure at around $1,050, and Perr&Knight’s RateWatch showed rates rising in Michigan by 8.6 percent in 2013 and by 5.2 percent in 2014.

Michigan’s no-fault system provides lifetime medical benefits that “are the broadest and most generous of any benefits under any no fault system in the entire country,” according to Mark Vanneste with the Michigan law firm of Seacrest Wardle.

Participating in an A.M. Best podcast on Michigan’s no-fault system, Vanneste said that if a person is injured in an auto accident in Michigan, “they may be entitled to lifetime untapped medical and rehabilitation expenses. … The law that was written to provide for that coverage was very broad and includes everything that is reasonably necessary for a person’s recovery or rehabilitation, as long as … the charges are reasonable, as well.”

While the medical benefits are generous for those with catastrophic injuries, they come at a cost to Michigan’s drivers who pay for those benefits through a fee — currently at $186 per year, per car.

The fee is paid to the Michigan Catastrophic Claims Association (MCCA), which was created by the state legislature as a vehicle to reimburse auto insurers for claims that exceed $530,000.

“Since the inception of the MCCA, which was back in 1978, it has actually reimbursed insurance carriers over $12 billion. Today there are about 15,000 accident victims whose claims are open with the MCCA because they have reached that $530,000 amount. Although the MCCA does reimburse insurance carriers, once a claim does reach that figure the carriers are still responsible for adjusting the claim, making payments and so on and so forth, and then are reimbursed,” Vanneste said.

Michigan’s no-fault system was adopted in 1973 and requires drivers to purchase no-fault coverage. The intention was not only to provide sufficient coverage for people injured in auto accidents, but also to reduce auto insurance costs through limiting lawsuits after the fact.

Insurance costs have continued to go up, however, and legislative reforms that have been introduced with the aim of slowing the upward spiral have been unsuccessful.

“Over the past few years because of the cost of the system there have been a few different proposals that we’ve seen in the Michigan legislature,” Vanneste said. “None of them have gained significant traction as yet but it’s an issue that is not going away.”

Vanneste said that some previously proposed changes “have included things like a million-dollar cap on lifetime medical benefits, or even being able to take a lower cap in exchange for a lower premium. There have also been proposals to limit what medical providers can charge for services, kind of a fee schedule for certain things.”

The Michigan Insurance Coalition, an insurance trade group that supports “reasonable reform and cost controls,” has deemed the current system “unsustainable.” Without reasonable reform, “auto insurance costs will continue to rise until it is unaffordable,” the MIC stated in a report to lawmakers, “Legislators’ Guide to Michigan’s Insurance Issues.”

A report published in 2013 by the Citizens Research Council of Michigan concluded the unlimited benefits are a reason for higher medical spending in Michigan, the Associated Press reported. The study also cited auto insurers’ bill-paying responsibilities along with their lack of market power to negotiate lower payments and their inability to implement cost controls as factors. The CRC recommended, among other things, the establishment of a fee schedule as a means of cost control.

The state’s no-fault system has also been linked to a high-rate of auto insurance fraud in Michigan. The Coalition Against Insurance Fraud, which is pushing for anti-fraud provisions to be included in any no-fault reform package, says the system “encourages swindlers to lodge inflated claims for lengthy treatment regimens.”

Michigan Republicans introduced a measure last year that would have cut premiums and limited medical benefits. Similarly Gov. Rick Snyder backed a bill in 2014 that would have done the same. Neither measure succeeded.

While no major no-fault reform bills have been introduced so far this year, the MIC expects “to see some serious efforts” filed later this spring, perhaps in mid-April, according the MIC’s Tom Shields.

A statewide survey commissioned in 2013 by the Coalition for Auto Insurance Reform (CAIR), found that the majority of Michigan voters believe their auto insurance premiums are too high and would support no-fault reform legislation that would lower their auto insurance costs.

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