Michigan Consumers and No-Fault Insurance
NDIANAPOLIS--Feb. 25, 2014: The following was written by Charles M. Chamness, president and CEO of the National Association of Mutual Insurance Companies:
More than 40 years ago Massachusetts implemented the country's first no-fault insurance law. The intent of the law: avoid expensive litigation over the causes of accidents, which in turn would result in lower insurance premium costs.
By 1975, the District of Columbia and 15 more states – including Michigan – had followed with their own laws. In the years since, however, no other state has adopted no-fault laws while four states and the District of Columbia reversed gears and repealed theirs. In Michigan, there has been much debate and several attempts in recent years to reform its law.
Even a cursory glance at the numbers show that in Michigan, the no-fault system has not reduced insurance costs. Because approximately half of the auto insurance companies that do business in Michigan are members of the National Association of Mutual Insurance Companies, we know the system is broken and in dire need of reform.
The speaker of the Michigan House of Representatives announced his intention last week to move legislation that would overhaul the no-fault law through the Legislature again this year. Reining in costly, unlimited and out-of-control lifetime medical benefits is one of Speaker Jase Bolger's objectives. It is important to our members' policyholders too, because mutuals exist to serve the needs of policyholders, not shareholders.
Consider this one simple statistic: the state's auto insurance costs are now as much as 35 percent higher than in neighboring states. With an average auto insurance medical claim of more than $45,000 that is more than twice as high as in the next closest state ($17,051 in New Jersey), Michigan's cost of Personal Injury Protection coverage has increased more than nine time as much as in other no-fault states.
Not many years ago attendant care was less than 10 percent of the overall cost of no-fault. Today it is nearly 40 percent of the cost of the Michigan Catastrophic Claims Association – driving overall medical payments up by 250 percent to almost $1 billion per year. In some cases the MCCA has been ordered to pay families as much as $350,000 a year for attendant care alone.
To pay these spiraling costs, Michigan motorists are forced to pay to the state an extra $175 per vehicle – an increase of more than 3,100 percent since 1998 when the charge was just $5.60 per car. Confronted with these and other rising insurance costs, many drivers in Michigan have chosen to drive without insurance (one out of every five drivers on the road in the state today is uninsured).
The future is bleak without reining in these costs. With more than $65 billion in unfunded future liabilities, the costs of Michigan's no-fault insurance law will only push insurance rates even higher if nothing is done.
Unfortunately, another aspect of Speaker Bolger's proposal is not so good. His plan to arbitrarily impose price controls on the cost of auto insurance would have the unintended consequence of reducing competition among insurers. And it is competition, not government controls, that helps keep costs in check while offering insurance consumers more choices for coverage.
NAMIC will withhold judgment on the speaker's bill pending a closer evaluation of it by our members. Whether it is the best route to reform remains to be seen. We believe it is important that Michigan's insurance consumers pay attention to it.
And those who have long opposed common sense, market-based reform in the past should think long and hard about which side of history they want be on.
Chamness is president and CEO of the National Association of Mutual Insurance Companies, which is the largest property/casualty insurance association in the country. There are 26 NAMIC member companies that offer auto coverage in Michigan.