Cutting Auto Insurance Benefits Won’t Reduce Costs, Focus on Real Solutions
By Melvin Butch Hollowell
When auto no-fault went into effect in 1973, one of the key promises was that rates would decrease because of restrictions on litigation. That has proved to be an empty promise for too many Michiganians, particularly in Detroit. Our $5,000 per year average annual premium is the nation’s highest, causing an estimated 60 percent of the city’s motorists to drive without insurance. So while I agree that we need “creative and cost effective solutions” to this problem, as Rep. Shanelle Jackson stated in her recent viewpoint column, I respectfully disagree with the idea she proposes: giving up our life-saving auto insurance benefits without receiving any cost reductions in return.
Insurance companies are pushing to allow drivers the choice of personal injury protection (PIP) coverage between $500,000 and $5 million. That would make sense if we were able to choose our level of injury in an accident. Unfortunately that’s impossible, and it will lead to the most injured drivers paying out-of-pocket once they hit their limit.
Under cross examination before the House Insurance Committee, insurance industry leaders admitted that their proposal to cut injury benefits would not lower insurance rates. Furthermore, insurers did not deny that capping auto injury benefits would shift the costs of caring for more severely injured accident victims onto the Medicaid system, costing state taxpayers millions more each year. So under this plan consumers get no rate relief and taxpayers get hit with a tax increase.
Instead of tearing down the best auto insurance system in the country, let’s focus on some more practical solutions, starting with transparency. We need to know how rates are set in the first place since we are mandated by law to buy auto insurance.
The Michigan Catastrophic Claims Association was created by state law in 1978 to reimburse insurers for the costs of auto-related injuries exceeding $500,000. The MCCA is funded by an annual assessment charged to every vehicle, which increased this year to $175. Even though consumers foot the bill, we have no voice in how the MCCA is run (its voting board is made up entirely of insurance executives), we cannot ask for an independent audit, and the books are shielded from the Freedom of Information Act and the Open Meetings Act.
Until a law is passed that requires the MCCA to be made open for public examination, insurers will continue to claim that our no-fault system is broken and drivers will continue to get stuck with higher bills.
Lawmakers should also give the Michigan Insurance Commissioner stronger powers to regulate insurance companies. Drivers are required by law to carry auto insurance, yet the Insurance Commissioner does not have to give prior approval before insurance companies issue rate increases. Nor does he have the power to determine whether consumers have been overcharged and issue refunds.
Finally, the unfair practice of using credit scores to set auto insurance rates must be banned. One’s financial situation has no bearing on whether that person is a safe driver. This predatory rating practice impacts impoverished urban areas like Detroit far more than other areas of the state and it must be stopped.
Any one of these solutions – increased transparency, giving more oversight to the Insurance Commissioner or banning credit scoring – is far more likely to bring rate relief to Michigan drivers than cutting injury benefits.
Butch Hollowell serves as General Counsel of the Detroit NAACP and is the former Insurance Consumer Advocate for the state of Michigan.
