Michigan’s PIP Reinsurer Raising Rates 21%

Published March 23, 2012

Michigan’s state-chartered nonprofit reinsurer for personal injury protection coverage will be raising its assessments by 21 percent this year, in part to cover an estimated $2 billion deficit.

The increase comes despite legislative efforts to begin addressing the problem of rampant fraud in the system.

The Michigan Catastrophic Claims Association said in a statement its premiums would rise to $175 per insured vehicle effective July 1, up $30 from the current charge of $145. The Michigan Legislature created the MCCA in 1978 to finance catastrophic claims in the state’s unique no-fault auto insurance system, which requires insurers provide unlimited lifetime coverage for medical bills arising out of auto accidents.

$85 Billion Paid Out

The assessment includes $32.72 per vehicle to address the association’s deficit, currently estimated at $310.78 for every insured car in the state. The association reported it paid out $927 million to member insurers in 2011, bringing its grand total to $85 billion since 1979.

The MCCA reimburses primary auto insurers for PIP claims that exceed $500,000, with all auto insurers doing business in the state required to pay reinsurance premiums to the association.

Third-Most Expensive

According to a recent survey by Quadrant Information Services on behalf of Insure.com, Michigan ranked as the third-most expensive state for auto insurance this year, with annual premiums of $2,013 for typical coverage obtained by a single, 40-year-old male with a good driving record and short commute.

Given those dismal figures, there has understandably long been interest in reforming Michigan’s system to bring costs down. Legislation introduced last September in the state Senate as S.B. 649 by Sen. Virgil Smith (D-Detroit) and in the state House as H.B. 4936 by Rep. Peter Lund (R-Shelby Township) would have replaced Michigan’s uncapped medical benefits with a system in which consumers could choose $500,000, $1 million, or $5 million of PIP coverage. The state with the second-highest mandatory PIP benefits, New York, requires just $50,000 in coverage.

The bill also would have responded to medical inflation by adopting a medical fee schedule similar to that used in workers’ compensation insurance.

The Heartland Institute further argued reform of the Michigan system should include serious efforts to crack down on fraud. Heartland proposed creation of an insurance industry-funded anti-fraud authority, modeled on a similar program in Pennsylvania and Michigan’s own Auto Theft Prevention Authority. Sen. Smith proposed just such a program in legislation introduced as S.B. 296.

Little Movement

Little has come of these initiatives thus far in Michigan’s 2011-2012 legislative session. Lund’s bill passed the House Insurance Committee in October but has moved no farther. Neither of Smith’s bills has moved out of committee.

However, Gov. Rick Snyder (R) in March signed a separate, more modest antifraud measure sponsored by Sen. Smith.  S.B. 298 makes it a crime to employ “runners, cappers or steerers,” individuals who appear at accident scenes and attempt to steer victims to particular doctors or attorneys or who solicit accident victims to falsely claim they underwent medical procedures as a result of an accident.

These auto insurance fraud crimes will now be punishable by fines of up to $50,000 and prison sentences of up to 10 years.

The bill also makes changes to the formula used by the Michigan Basic Property Insurance Association (the state’s FAIR Plan) to set rates. It was welcomed by the Insurance Institute of Michigan, which pointed to National Insurance Crime Bureau data finding the number of questionable claims in Michigan jumped from 2,973 in 2009 to 5,024 in 2010.

The IIM said common fraud schemes include padding claims, misrepresenting facts on an application, and submitting claims or billings for injuries that never occurred or medical services never rendered.

“The unlimited benefits contained in the state’s no-fault system are ripe for fraud,” IIM Executive Director Pete Kuhnmuench said in a statement. “Providing law enforcement with the right tools to fight this abuse helps keep costs down for everyone.”