Apr. 29--A new report by a consumer advocate claims that some Michigan drivers will see only minimal savings this year from the coming rollout of the state's revamped auto insurance system, although Gov. Gretchen Whitmer insisted Tuesday that the savings will still be significant.
The report by Douglas Heller, a California-based insurance consultant hired by the Coalition Protecting Auto No-Fault, a Michigan group known as CPAN that opposed the changes, notes how most auto insurers have opted to keep private their new rating filings until the overhauled system goes live July 2.
But early regulatory filings by two large insurers that are public -- Auto-Owners Insurance Group and Citizens Insurance, together representing 16.5% of the Michigan market -- show the companies are not lowering their own pricing, despite enjoying lower costs under the new system, and are relying entirely on cuts to the annual $220-per-vehicle catastrophic claims fee to achieve the law's mandated price reductions, the report claims.
This catastrophic claims fee -- set by a state association -- goes toward the lifetime medical care of the worst-injured accident victims.
Reductions in the claims fee can count toward insurance companies' legally required price reductions to the medical benefits portion of auto insurance policies, known as personal injury protection.
Heller's report warns that drivers who expect to see significant savings on their insurance bills come July will likely be disappointed, especially those in urban areas such as Detroit with the highest car insurance rates.
"Here we are: We have the new world, and it's the same as the old world," Heller said Monday. "I expected the insurance companies would at least vaguely be partners in this process. But other than the (catastrophic claims) cut, it is feasting at the trough."
The Insurance Alliance of Michigan, an industry group, denounced the report's analysis as "bogus and deeply flawed," and called it "the latest in a long line of false claims, distortions and misinformation pushed by those trying to turn back the clock on auto no-fault reform."
Erin McDonough, the alliance's executive director, said the filings show that insurance companies will exceed the new law's mandated price reductions.
"CPAN should be ashamed for so brazenly distorting the truth," she said in a statement.
The CPAN group, which opposed the new auto insurance law, includes patient advocates, trial lawyers and medical providers that stand to lose millions under the reform.
Gov. Gretchen Whitmer signed the auto insurance overhaul into law last May with the goal of lowering Michigan's auto insurance rates, by many measures the nation's highest.
On Tuesday, she defended the new law and announced that rate filings for the first six insurance companies to gain approval from the Michigan Department of Insurance and Financial Services -- representing about 25% of the insurance market -- meet or exceed the law's required average price reductions of 10% to 45% for the personal injury protection portion of drivers' premiums.
Personal injury protection, or PIP, can represent more than half the cost of many policies. The announcement did not name the six auto insurers.
"This is great news for Michigan drivers and their families," Whitmer said in a statement. "Last year, we worked across the aisle to pass a historic, bipartisan auto insurance reform to bring down costs for drivers everywhere. It's great to see that it's paying off for Michiganders, especially during a time when drivers may need extra money in their pockets."
The governor's announcement did not address the underlying claim in the consultant's report that insurance companies are using reductions in the catastrophic claims fee to achieve their legally required cost cuts for PIP, and therefore aren't lowering total premiums by a significant amount. The new law allows for this maneuver.
Starting in July, the system will give Michigan motorists a first-ever choice in the amount of medical benefits to purchase with their no-fault policy. Policy holders generally must wait until late spring or early summer to learn from their insurance company how much they could save.
Michigan is the only state that requires that all motorists buy potentially unlimited lifetime medical benefits. Drivers will still have the option in July to buy policies with unlimited benefits, and accident victims who are receiving benefits won't be cut off by the new law.
Policy holders who choose lower amounts of medical coverage are expected to see the greatest price reductions, with the biggest price drops for those who entirely drop medical benefits from their auto insurance.
The insurance industry has said that cost savings are expected to grow next year, when new price controls for medical providers who treat car crash victims take effect in July 2021.
Less coverage, higher charge?
Citizens Insurance intends to raise its rates by $17.3 million in July, the report says, despite the new system's various cost-containment measures that are expected to lower insurers' liabilities.
The report says that Citizens Insurance plans to charge 3% more for a policy with $500,000 of no-fault medical benefits than it does now for a policy with unlimited medical benefits, in which its liability is capped at $580,000. (Under no-fault, once medical bills for a claim exceed $580,000, the Michigan Catastrophic Claims Association takes over payment via the $220 fees.)
"They will charge you more, even though they are covering less for that money," Heller said of the insurance company.
Even so, many Citizens Insurance customers still will see reductions in their insurance rates because the $220-per-vehicle catastrophic claims fee is going down and, according to the report, should make up for the insurer's rate hikes.
The fee drops to $100 for those who choose to continue with unlimited medical benefits; the fee disappears for drivers who pick options besides unlimited personal injury protection.
In a statement, Citizens Insurance says its new policies will exceed the auto insurance law's mandated rate reductions.
Citizens Insurance also denied the claim that it is raising rates by more than $17 million.
"The author assumes everyone will stay at unlimited PIP coverage," the company said. "PIP choice is a key mechanism for Michigan drivers to realize premium savings. Our early results show many customers electing a choice other than unlimited PIP. This means that our actual change in premium will be much less than the author assumes."
Some Auto-Owners rates to rise?
Heller's report says that rates for some Auto-Owners customers in Detroit will jump by more than 80% for those choosing unlimited no-fault coverage. Those increases would be allowed under the new law, so long as the company's average rates meet the mandated reductions.
"These predominantly African American neighborhoods have household median incomes that are less than half the Michigan statewide median income, meaning that the pain of the rate increase these residents face will be particularly acute," the report says.
An Auto-Owners spokesman said the company has complied with the new law's requirements to lower costs for medical coverage.
Higher liability requirements
The report suggests that some drivers' potential insurance savings will get washed out by the new law's higher default option for bodily injury liability coverage of $250,000, up from the current $20,000 minimum that dates to the 1970s.
However, drivers can specifically request a lower minimum liability coverage amount of $50,000.
Anita Fox, director of the Michigan Department of Insurance and Financial Services, said Tuesday that insurers' filings still show significant savings for policy holders even when adjusting for the higher liability coverage requirement.
Secrecy not new
The Department of Insurance and Financial Services has traditionally allowed insurance companies to keep their rate filings confidential until the new rates take effect. This confidentiality is permitted by statute and is for business competition reasons, according to department spokesman Bob Burns.
Heller said he was surprised Michigan allows insurance giants such as State Farm and Progressive to keep new rates private until they take effect. That nondisclosure prevents a fuller analysis of the new system's impact on consumers.
"With such a major overhaul, you would think you'd want to have as many eyes on this process as possible," Heller said.
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