Crisis Predicted In No-Fault’s Unlimited Coverage

A study of almost 1,100 no-fault auto injury insurance claims in Michigan indicates claimed losses grew an average of 13 percent per year from 2002 to 2011, according to the Insurance Research Council.

Michigan is the only state that requires motorists to purchase insurance providing unlimited lifetime medical coverage for auto rash related injuries, and many of the state's insurance agents "are concerned that a crisis is on the way," according to Wayne Blackwell.

"Without any type of fee schedule or negotiated rates for the care providers, the current system is unsustainable and headed for a crisis," said Blackwell, president of Blackwell Insurance Services at 1700 East Beltline Ave. NE in Grand Rapids. He is a board member of the Michigan Association of Insurance Agents and past president of the West Michigan Association of Insurance Agents.

A few weeks ago, the Michigan Catastrophic Claims Association announced the premium paid by its member insurance companies will rise to $175 per vehicle effective July 1, which represents an increase of $30 to the current MCCA charge of $145. The $175 includes $141.93 to cover claims; $32.72 to address the $2 billion estimated deficit in the fund, and 35 cents for administrative expenses. The current deficit is estimated at $310.78 per insured car. The MCCA premium charge is determined each year in March following an actuarial evaluation.

Created by the state legislature in 1978, the MCCA is a private, nonprofit association that protects Michigan's auto insurance industry by providing reinsurance for unlimited catastrophic benefits. The MCCA reimburses auto insurance companies for Personal Injury Protection benefits paid in excess of $500,000 per claim. Blackwell said at one time that excess limit was $250,000 per claim.

Michigan is the only state that mandates unlimited medical benefits for auto crash injuries. The state with the next highest level of benefits behind Michigan mandates only $50,000, according to MCCA.

All auto insurance companies operating in Michigan are required to be members and pay premiums for the reinsurance provided by MCCA. These premiums, together with the insurer's PIP premium, represent the cost to cover the mandatory unlimited medical benefits which, like other costs and expenses, are reflected in the auto premiums all Michigan policyholders pay.

The MCCA paid out $927 million (more than $133 per insured car) in 2011 for claim costs resulting from catastrophic injuries. The majority of these injuries involve closed-head injuries, paraplegia, quadriplegia and burns. Since 1979, there have been more than 28,000 claims reported to the MCCA, which will cost an estimated $85 billion.

Blackwell said Michigan has "for sure the most generous program, from a benefit standpoint, in the U.S., without being at the top of the cost chain, either." He described Michigan PIP auto insurance as "probably the very best value but, unfortunately, that may trend away.

"The rating organizations are starting to become concerned about the health of our insurance companies in Michigan," he said, because if the MCCA fund goes insolvent, some insurance companies' would face lifetime catastrophic care obligations greater than their assets.

Last year House Bill 4936 was introduced in the Michigan Legislature, which would change the no-fault law to no longer automatically cover unlimited lifetime medical and rehabilitation benefits. Drivers could choose PIP coverage with maximums of $500,000, $1 million or $5 million, with $500,000 being the default.

Blackwell said HB 4936 has been reported out of committee but has not gone further.

"One of the sticking points seems to be the hospitals' and care providers' reluctance to looking at a fee schedule or something of that sort. That seems to be the obstacle."

In March, State Rep. Phil Cavanagh, D -Redford Township, sponsored bills that would open the deliberations of the MCCA to public view. He noted the MCAA "is funded by the public's money and yet rates are set behind closed doors. They hire their own auditors whose conclusions are favorable to the MCCA at the expense of the motorists."

He said the MCAA board is made up of representatives of Michigan's largest auto insurance companies.

Blackwell said Michigan voters twice turned down putting a limit on the no-fault catastrophic care benefit, but that was in the 1990s when the potential increase in premiums "wasn't expensive enough for them to want to do away with it."

With the weak economy, the cost of auto insurance and the increasing cost of catastrophic care, "maybe there would be a different result today. I don't know," said Blackwell.

Blackwell said the Michigan Association of Insurance Agents is a trade association of independent insurance agencies, not insurance companies, and "our interests may not always align with those of insurance companies. Our customers are insurance consumers, which gives us a front line perspective on how they feel about insurance issues as we talk with them daily."

The MAIA supports the establishment of a medical fee schedule for PIP coverage of automobile accident-related injuries, and he noted as an example that the Workers' Compensation fee schedule has been "successful in constraining health care costs for that program."

A fee schedule for PIP injuries could save the consumer more than 10 percent on full-coverage auto insurance, in the estimation of the Insurance Institute of Michigan.

MAIA also supports containment of the cost of attendant care for those with catastrophic injuries resulting from a car crash, according to Blackwell. He said attendant care makes up almost a third of all MCCA-related costs, and relatives who provide care to catastrophic accident victims can be compensated 24 hours per day, seven days a week.

Although agents recognize the severe stress a catastrophic accident can place on any family, common sense criteria for hours compensated and costs per hour for basic care should be enacted for unlicensed caretakers, according to Blackwell.

The MAIA also supports legislation to clarify language because of Michigan Supreme Court decisions regarding threshold criteria for "serious impairment of bodily function."

Also, lawsuits for non-economic "pain and suffering" awards have a significant impact on auto insurance premiums in the state, and more specific language is needed, he said.