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Michigan Auto Insurance Industry Trying to Break Its Promise of Fair Coverage

4 comments

Nearly 40 years ago, the people of the State of Michigan, represented by the state legislature, entered into an agreement with the automobile insurance industry. The No-Fault Act, which was passed in 1972 and took effect in 1973, represents a compromise: auto insurers agreed to pay lifetime medical benefits for auto-related injuries without regard to fault, while consumers gave up their right to sue at-fault drivers for non-economic damages (such as pain and suffering) unless their injuries met one of three thresholds (death, permanent serious disfigurement, or serious impairment of body function). As a result, injured accident victims would be able to get the care and treatment they needed (as long as they purchased auto insurance for the vehicle involved in the accident), while the amount of litigation was reduced.

With the support of the auto insurance industry, two bills have been introduced to effectively destroy this system. Senate Bills 293 and 294 would place fee schedules on medical benefits and allow auto insurers to offer capped medical benefits for (theoretically) reduced premiums. Currently, about two-thirds of Michigan residents oppose changing the system of unlimited lifetime medical benefits, but the insurance industry is trying to convince lawmakers that motorists can’t afford or don’t want this coverage.

These bills fly in the face of the agreement made in 1972. If auto insurers want to take back their promise to pay lifetime medical benefits for auto accident-related injuries, they must be willing to give up the threshold requirement for tort recovery against at-fault drivers. With the increasing cost of health care, lower medical benefits caps are sure to be exhausted quickly. This shifts much of the cost to at-fault drivers – a scary proposition in light of the fact that 1 in 7 motorists don’t have any auto insurance at all – and taxpayer-funded government benefits like Medicaid and Medicare. Under the current system, you can protect yourself against ruinous medical expenses by purchasing no-fault auto insurance (as required by law), even if the other driver doesn’t have any insurance.

Since 1973, Michigan’s No-Fault Act has protected car crash victims from overwhelming medical expenses. The auto insurance industry wants to break its promise to consumers: insurers want to avoid paying medical benefits and to avoid paying tort damages. This would leave injured victims out in the cold, without any legal recourse, while insurance companies pad their profits. The proposed bills are simply unfair and destroy the current balance of the system.

4 Comments

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  1. Insuranceguru says:
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    The writer of this article is very misinformed, medical benefits are available to any party injured in an auto accident or pedestrian hit by a motor vehicle. Whether or not they have purchased coverage or not. In some cases the party that is NOT at faults policy will pay for the AT Fault’s parties medical bills up to 500,000 $

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    Actually, there are several instances in which an injured party might NOT receive medical benefits. The most common is when someone is driving a car they own but have not purchased auto insurance for it. See MCL 500.3113.

    It is true that sometimes the insurance company of a driver who is not at fault will pay the medical benefits of an injured, at fault party. This could happen if an at-fault motorcyclist strikes a car (whose driver is not at fault) and is injured. The great thing about our current no-fault system is that the benefits are available to all injured persons without regard to fault, eliminating a huge amount of litigation that would be necessary to determine the priority of payment in every auto injury case.

    Insurance companies agreed to this set-up in 1972, and in return received the protection of the tort threshold for non-economic damages. Now they want to keep the threshold AND limit their exposure for medical benefits. That seems unfair to me.

  3. John Sapiens says:
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    As a former Illinois resident I find no fault insurance to be exorbitantly expensive and morally reprehensible. In an automotive accident someone is at fault. With no fault insurance the monetary burden is spread across all drivers regardless of the actual risk each driver poses. With no fault insurance it is not how low risk of a driver you are; it is how high risk all of the drivers around you are. No fault is so illogical to me that it is unnerving and nauseating to think it is law.

    A Michigan state senator noted: “while drivers are legally required to purchase basic coverage (failure to do so is a misdemeanor), nearly 20 percent reportedly do not. This number rises to 50 percent in Detroit, which also has the state’s highest average automobile insurance premiums. These non-insured free riders place a significant strain on the system and result in increased premiums for those drivers who maintain the required insurance.” You also noted, “while Michigan’s insurance system may not be perfect, it provides benefits that no other state offers.” The real problem appears to be insurance premiums are excessively high and unaffordable to many Michigan residents. It is true that there will always be some number of drivers that do not purchase insurance, however 20% is a rather high percentage. So the question that remains is it better for 80% of drivers to pay for expensive insurance that provides extra benefits, or is it better for 95% of drivers to pay for reasonably priced insurance that provides competitive benefits. Having been a resident of Illinois, paying reasonable insurance premiums and getting competitive benefits, my vote is for the later.

    The Michigan no fault insurance needs reform. The Online Auto Insurance News notes that the average no-fault claim in Michigan is $36,634. Other no-fault states had average claim rates of NJ $16,331, NY $8,647, FL $8,096, DE $7,643, MN $7,364, DC $5,395, and ND $ 5,394. It is obvious there something is out of control in Michigan given its astronomical per claim costs. The Online Auto Insurance News states this is due to “rampant fraud and abuse.” I personally, do not have enough knowledge of the underlying mechanisms of the auto insurance industry to know how this is possible, what I do know is that at a minimum I believe the no-fault act needs to be reformed to reign in these claim cost and subsequently lower premiums for drivers in Michigan.

    Based upon the research I have done Michigan insurance premiums do appear to be some of the highest in the nation. Based on quotes for Michigan auto insurance that I have received that exceed $2000 a year I believe the below data to be surprisingly accurate.

    Average Annual Premium
    2 Michigan $2,098.29
    9 Illinois $1,679.15
    33 Indiana $1,302.51
    49 Ohio $999.86

  4. I.M. Wisetou says:
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    Mr. “Sapien”,

    Creating a fake name (there are no John Sapiens within the U.S., Illinois, Michigan or otherwise) and then creating multiple on-line profiles and posting the identical, long-winded, and obviously pro-insurance industry propaganda on multiple websites regarding this insurance-industry written legislation is exactly the sort of Astro-turfing we’ve come to expect from those who are the patrons of today’s GOP.