Michigan Governor Backs Auto Insurance Reform

Michigan Governor Backs Auto Insurance Reform
April 30, 2013

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)

Michigan Gov. Rick Snyder (R) has announced he plans to seek legislation to end the state’s unique requirement that all auto insurance policies provide unlimited lifetime medical benefits.

Snyder endorses a plan that would limit mandatory benefits under the state’s no-fault personal injury protection system to $1 million. Even with this change Michigan would have by far the nation’s highest PIP benefit. New York has the second-highest mandatory benefit: $50,000.

"Michiganders have seen their auto insurance rates rise faster than any other state in the country," said Snyder in a press conference with several lawmakers and business leaders. "It has been 40 years since the no-fault system has been implemented, and it's long overdue for review. These changes will create a policy that continues to cover accident victims far better than any other state and will create cost controls that stem the tide of rising insurance premiums while also providing immediate relief for families."

‘Outdated, Expensive, Unsustainable’

"Michigan has some of the highest insurance rates in the country, and it's our own fault," said House Insurance Committee Chairman Pete Lund (R-Shelby Township) during the press event. "We have an outdated, expensive, and unsustainable insurance mandate that puts an incredible burden on Michigan families trying to make ends meet. The hard-working people of this state need and deserve relief."

“Maybe the Michigan auto insurance law was ‘essential’ when it became law, but in the last four decades it has become luxurious compared to all other states,” said Alan Smith, Midwest director of the R Street Institute. “Gov. Snyder and insurance committee chairs Sen. Joe Hune and Rep. Pete Lund should be applauded for aiming at reasonable reform as the next big project.”

Nation’s 2nd-Highest Premiums

According to Insure.com’s 2013 survey of auto insurance quotes across the states, Michigan’s average annual premiums of $2,520 ranked second-highest in the nation, behind only Louisiana’s $2,699. Insure.com estimates the national average is $1,510.

In Michigan, part of the cost is an annual fee drivers pay to fund the Michigan Catastrophic Claims Association, a state-chartered reinsurer that is responsible for accident-related medical claims that exceed $500,000. The MCCA fee is set to rise to $186 on July 1, from $175 currently.

Snyder said he supports phasing out the MCCA and replacing it with a nonprofit entity. The existing MCCA would continue to ensure all current accident victims receive unlimited lifetime benefits from their insurance company.

The governor’s office also said the legislation would aim to end the practice of medical providers charging more for auto-related injuries, limiting payments to the same average fees they charge other types of insurance. The average auto insurance medical claim in Michigan is more than $45,000, twice as high as in the next closest no-fault state. These additional costs have been passed on to consumers through higher insurance premiums.

Much Higher Payouts

In a report published by R Street earlier this year, R Street Senior Fellow R.J. Lehmann found Michigan auto insurers uniformly paid more than either workers’ compensation insurers or Medicare for 21 common medical services and procedures. In Detroit, auto insurers paid one-third or more than workers’ comp insurers, and they paid 50 percent or more than Medicare for 18 of the 21 services.

“We would need to see more details about how that provision would work in practice, but the governor has identified one of the core problems of the current system,” Lehmann said. “Michigan has the highest average claim costs of any state with a no-fault system, and those costs spiked 81 percent over the last eight years. It’s simply not sustainable.”

Michigan has three cities in the top ten highest auto insurance premiums in the nation, and the rate of uninsured in the state’s urban areas is estimated as high as 50 percent. Proposed companion legislation by Sen. Virgil Smith will help tackle the need for affordable insurance in Michigan’s cities by establishing a pilot program for eligible low-income drivers to purchase a low-cost policy. The program would allow medical coverage to be purchased at $50,000, to lower the cost even further.

The R Street Institute contributed to this report.

Steve Stanek

Steve Stanek (sstanek@heartland.org) is a research fellow at The Heartland Institute and managing... (read full bio)