Insurance Companies, Not the Supreme Court, to Blame for High Rates

It’s a common refrain we hear over and over in Michigan: "My auto insurance rates are too high." Almost everyone agrees that consumers should be paying less for auto insurance, but there has been a great deal of misinformation about who is responsible for the high rates. A recent Michigan Supreme Court decision has added fuel to the fire.

The case – actually two separate cases that were consolidated due to the similar legal issues involved – deals with two individuals who suffered horrific injuries in automobile accidents. As a result of their injuries, these accident victims required around-the-clock nursing care. Anyone who reads the factual description of the injuries would concede that they are "catastrophic" in the ordinary sense of the word. As it turns out, the injuries were "catastrophic" in the legal sense of the word, as well.

In Michigan, an accident victim’s own no-fault personal injury protection carrier is responsible for paying medical expenses, wage loss, and replacement services related to an auto accident. In the event these expenses exceed a certain amount (currently about $460,000) the Michigan Catastrophic Claims Association (MCCA) steps in to reimburse insurance companies for the balance. The MCCA was created by the legislature in 1978 to help defray the costs borne by any one individual insurance company.

The MCCA challenged the reasonableness of the care provided to the two injured accident victims. It claimed that it should not have to pay the entire amount agreed to by the no-fault insurance carrier. Fastidiously applying Michigan law, the Michigan Supreme Court ruled that the MCCA must pay the amount agreed upon by the no-fault insurer and the accident victims.

Insurance companies have emphatically decried this decision. They now claim that they have no choice but to increase the rates charged to all Michigan policy holders. An editorial in a major Michigan newspaper recently echoed these sentiments, essentially blaming the Supreme Court for the insurance rate increase.

Fortunately, the insurance companies’ attempts to pull the wool over consumers’ eyes has not been entirely successful. When put to the test of common sense, the insurer’s argument begins to unravel. The recent $20 rate increase is far in excess of what would be necessary to cover the claims at issue in the recently-decided case. Given that the increase was announced before the Court released its decision, it is hard to believe that the increase was the result of the decision. Furthermore, Michigan law permits insurance companies to review settlements for reasonableness before they are finalized. Once they have been finalized, however, insurers should be bound to the agreement, just as consumers are.

Insurance exists to spread the risk of loss, so one individual accident victim is not left with a crushing, unpayable debt. Simply put, insurance companies and the MCCA must be held accountable to the people they are meant to serve. It alone sets the rate it charges, and it should have to explain in detail why it charges the rate it does. Then will it be obvious that the insurance companies are responsible for higher rates, not the Justices who apply the law as written.