Smart Auto Insurance Blog

Many people are worried that Michigan’s No-Fault auto insurance system is headed for very hard times.  According to Pete Daly’s Insurance News Net article “Crisis Predicted In No-Fault’s Unlimited Coverage,” the amount of these Michigan auto insurance claims went up by 13% in less than a decade.  This unlimited lifetime medical coverage is only required through your auto insurance in Michigan, where every auto insurance company in the state has to pay into the coverage pool.

The Michigan Catastrophic Claims Association, MCCA, reimburses auto insurance companies for any medical bills they have to pay over $500,000.  After the MCCA started accruing too much debt, they had to double the amount they would cover after from $250,000 to the current $500,000.  The unlimited medical benefits in Michigan are interesting because the state requiring the next highest medical coverage only mandates $50,000 worth of medical benefits.  Auto insurance companies will have to pay yearly premiums of $175 for each car they insure, an increase starting July 1 from the current $145.  $141.93 of that is for paying claims, $32.72 goes towards the MCCA’s debt, and $0.35 is for administration.

Unfortunately, the $32.72 doesn’t go far in covering the $2 billion in debt that the MCCA has already incurred.  Last year, $927 million was paid out in catastrophic claims.  Due to Michigan’s generous lifetime medical coverage mandate, insurance companies are worried that they will have serious financial troubles if the MCCA becomes insolvent and they have to cover this lifetime medical care.  A House Bill introduced last year would eliminate required lifetime coverage and give options of $500,000, $1 million or more chosen by individuals.  The default maximum would be $500,000.  So far, the bill hasn’t gone anywhere.

The Michigan Association of Insurance Agents has some ideas that they believe would help ease some of the costs.  They think that a medical fee schedule for PIP insurance, similar to that used for Worker’s Comp insurance, would really help lower costs related to PIP insurance.  They think that there should be clarification in the reimbursement for medical care performed by family members, because some are getting paid for every hour of every day.  MAIA also believes there should be more clarity in what is considered “serious impairment” and “pain and suffering” because there may be some questionable claims.

Right now there is some work that needs to be done to help sustain Michigan’s auto insurance PIP coverage.  Whether the unlimited lifetime coverage needs to be changed or some of the other items associated with the coverage altered, we’ll continue to follow this story.

A system is in place for Michigan’s auto insurance that is different from any other state in the United States.  Their drivers get unlimited lifetime medical benefits for any injuries related to a crash.  According to a PR Web press release, the price that auto insurance companies pay to maintain that coverage will be going up.  In order to lessen the burden caused by this mandatory unlimited lifetime medical coverage, the state of Michigan introduced the Michigan Catastrophic Claims Association 33 years ago.  This group refunds auto insurance companies any amount they have paid in medical claims over $500,000.

Companies currently pay $145 per year for every automobile they insure to the MCCA.  This premium is going to increase 21% to $175 this July.  The MCCA currently operates with a large deficit and an increase in claims they will have to pay out is expected.  They have paid out on 28,000 claims worth close to $85 billion since the MCCA was founded.

In states other than Michigan, each policyholder chooses the amount of medical coverage they will carry and only pays their insurer for that coverage limit.  The lifetime medical benefits provided in Michigan put a big strain on auto insurance companies and the MCCA, but the yearly cost they pay the MCCA is passed right down to Michigan drivers.  Many lawmakers are trying to get a limit placed on the amount of compensation that can be received from one claim, but that has yet to happen.  Michigan’s unique auto insurance system definitely costs a lot of money, but can benefit many claimants.

Delaware auto insurance rates are going up for State Farm customers in that state.  According to Online Auto Insurance News’ John Pirro, “State Farm car insurance rates to rise for Delaware policyholders.”  Starting today, rates will be increasing around 1.9% in Delaware.  State Farm is the second biggest auto insurance company in Delaware behind Nationwide.  Their market share is 22 percent and they say that they’re raising rates so they can keep the financial promises they have made to those customers.

Many factors will determine the amount of individual policyholder increases, including their particular coverage and any discounts they maintain.  All liability and personal injury protection coverage will be increasing.  Collision and comprehensive costs, however, will be increasing for some but decreasing for others.  From 2006 to 2008, PIP claims increased 10% and property liability claims increased 4.5%.  State Farm is also raising Michigan and Wisconsin auto insurance rates, while they are decreasing Illinois, Alabama, and Georgia auto insurance rates.

According to the article “Michigan Motorists Hit With $18 Insurance Hike” by Chris Christoff on freep.com, Michigan drivers will pay even more for their Michigan auto insurance starting July 1.  They will be paying about $143.09 more for each car they insure to pay for medicare costs of others hurt in traffic accidents.

This turns out to be about $18.20 more then they pay now for each car for the Michigan Catastrophic Claim Association (MCCA).  They are a Michigan group which covers car accident medical claims that exceed $480,000.  This new assessment is the largest they have bad since the MCCA was created back in 1978.

The MCCA, which is made up by insurance companies, increased the fee today to cover an estimated $2 billion deficit caused by the increased costs in health care and less income from their investments.  They paid out $811 million in 2009 for major injuries and they predict about 1200 more injured people will qualify for coverage in 2010.  Michigan is currently the only state that requires auto insurance companies to cover unlimited medical costs and the MCAA was developed to help pay for some of the exceptionally large claims.

State House Democrats announced last week a plan that would cut Michigan auto insurance rates and apply stricter restrictions on auto insurance companies according to the article “House Democrats Unveil Plan to Cut Auto Insurance Rates” by Chris Christoff on freep.com. 

Insurance companies state that this type of regulation will result in higher premiums for drivers.  The government’s plan would require insurers to offer low-cost auto insurance to drivers with lower income and good driving records.  Democrats and the state Insurance Consumer Advocate, Butch Hollowell, say the insurance industry is practicing unfair pricing. 

The article points out that Michigan has the second highest rates in the US just behind New Jersey.  This is despite the fact that accidents and thefts in Michigan have gone down over recent years.  The bill would also prohibit companies from using some discrimatory factors such as a driver’s education, their careers, or their personal credit ratings when determining auto insurance quotes.

A proposed bill to ban higher auto and property insurance rates for those living in Detroit, Michigan and surrounding areas failed in the Senate recently according to the article “Bill to Ban Higher Insurance Rates In Detroit Fails” by Karen Bouffard on detnews.com. 

The Senate brought the bill for a vote by Sen. Martha G. Scott, D-Highland Park, who urged Congress to pass the bill.  She said the state of Michigan pays the 12th highest auto insurance rates, but in the urban area it’s the highest in the country.  Sen. Alan Sanborn, R-Richmond believes the ban would increase rates for people who live in non-urban areas. 

The new bill could result in higher auto insurance rates for 3 out of 4 Michigan drivers according to Sanborn.  He believes there needs to be another way to solve the high cost of Michigan auto insurance.  As many people are struggling in this economy, auto insurance costs are becoming challenging for many residents.  Hopefully something can be worked out to help make auto insurance more affordable for all.

According to the article “Credit Scores Studied As Factor” by the Freepress Staff on Freep.com, the Michigan Supreme Court listened to arguments on October 7th about auto insurance companies using a customer’s credit score when considering their home and auto insurance rates.

Using the credit score was outlawed by the state back in 2005, but the insurance companies will be allowed to use the score as a risk factor pending the outcome of their lawsuit currently in the Supreme Court.  Most insurance companies offering Michigan auto insurance are to offer some sort of discount on premiums with use of a credit score.

Lawyers representing the insurance industry told justices that Linda Watters, the former Insurance Commissioner, overstepped her boundaries when she banned discounts based on good credit ratings.  Attorney Peter Ellsworth believes that insurance scores do not work and states that 60% of policyholders will pay higher costs if the court allows the ban of the credit score.

The high Michigan auto insurance quotes in Detroit and other Michigan cities are driving residents out as more and more people cannot afford the high costs.  It’s also causing thousands of residents to commit fraud or drop their insurance altogether.  This is according to the article “Car insurance rate setting hits Detroiters unfairly” by Jeff Gerritt on freep.com. 

Detroit is the nation’s poorest big city yet residents pay the highest average auto insurance rates in the country.  About half of its motorists go without insurance because it’s so expensive.  Part of the reason for this problem is what’s called territorial ratings, which allow auto insurance companies to base their prices in part where people reside.  Regardless of a person’s driving record, if they live in Detroit they will pay more for auto insurance.  Insurers state the reason for doing so is because these areas have been deemed higher risk. 

Since many are unable to afford their auto insurance costs, schemes are on the rise.  Some drivers buy fake insurance certificates for as little as $50.  Some use false suburban addresses when purchasing their policy to obtain a lower quote.

According to the Associated Press, Michigan auto insurance policy holders will soon have to pay more in fees as of July 1st. The Michigan Catastrophic Claims Association raised its fee, which covers seriously injured victims of car accidents, to $125 per vehicle. The charge is a $20 increase from last year.

Since Michigan is the only state that offers unlimited lifetime medical benefits through auto insurance for the seriously injured, the MCCA levies the fee to cover rising medical costs. The fee was actually reduced by $18 last year; however, that was due to investment gains that reversed themselves this year.

In the Detroit Free Press, Kathleen Gray reports that 12 Michigan auto insurance companies have agreed to freeze their rates for a year. However, 96 other insurers have not agreed to the rate freeze as of the March 1st deadline. Governor Jennifer Granholm requested that insurers freeze their auto insurance premiums for a year while the state legislature works on auto insurance reform. 

The insurance companies that have agreed to freeze their auto insurance rates are:

• American Bankers’ Insurance Company of Florida
• American International South Insurance Company
• American Reliable Insurance
• Wolverine Mutual Insurance Company
• Pharmacists Mutual Insurance Company
• Great Lakes Casualty Insurance Company
• Electric Insurance Company
• Essentia Insurance Company
• Meritplan Insurance Company
• IDS Property Casualty Insurance Company
• Liberty Mutual Property Insurance Company
• Merchants Mutual Insurance Company