Friday, April 20, 2012

How Michigan Screws Auto Owners

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I thought the outdated and unnecessary government mandated trips to a certified safety and emissions service provider at $30-$50 a pop in Virginia was bad, but it's got nothing on how the state of Michigan fleeces auto owners with the highest insurance rates in the nation which are going to go up for everyone, again.

The Michigan Catastrophic Claims Association (MCCA) announced today that the catastrophic premium paid by all insured Michigan motorists will be $175 from July 1, 2012 to June 30, 2013, a $30/21% increase from the previous year. Again, all Michigan motorists will be accessed this higher premium regardless of insurance provider, driving record, age, car they drive, or if they are a blood donor.

But wait, what is the MCCA? who serves on it? and how can they increase insurance rates for everyone in Michigan? I'm glad I asked. 

The MCCA is a private non-profit unincorporated association made up of insurance companies that was created by the Michigan state legislature in 1978. They are tasked with one objective: raise money to cover automotive personal injury claims in excess of $500,000. Essentially, the MI state legislature gave the insurance companies an authority to unilaterally raise insurance rates for all Michigan motorists. For added fun, as Tim Skubick points out on, "all the votes, all the debate, all the supposed 'reasoning' that goes into setting the surcharge is done in the dark."

This is all the result of Michigan's well intention no-fault automotive insurance requirement which guarantees unlimited life-time coverage of medical expenses resulting from automobile accidents.

In most states, motorists choose how much personal injury protection (PIP) to be included in their insurance plan just as they choose coverage limits in property damage liability, bodily injury liability, uninsured motorist liability, and  collision deductible among over options. Of course, higher liability coverage and a lower deductibles result in higher insurance costs, but minimize risk. You can choose less expensive premium, but at increased risk. Drivers make informed decisions about the range of coverage based on their own driving habits, vehicle, and assets.

It is all about assuming risk, insurance. Car insurance companies help assume the risk of the cost of driving (accidents, etc...) through premiums of many to help cover the costs when a white tail jumps out in front of you. 

Michigan state law mandates that all Michigan drivers carry and pay maximum no limit PIP. Consequently, all drivers have to pay premiums to cover unlimited PIP coverage no matter the individual situation. It doesn't matter if the car you driver is an old pick-up used just around the farm that barely travels on public roads but is legally registered and has insurance or a brand new sports car with a bad safety rating driven by a driver with a history of speeding, that premium rate is the same for all ($175 next year).

Unlike Tim Skubeck, I'm not really surprised that something as ill-conceived at the MCCA resulted and that the insurance companies have the authority to secretively raise rates to pay for it. Insurance companies saw the "unlimited life-time medical expenses" guarantee and knew that something would have to be done to address unlimited increasing health care costs, so there are only responsible for the first $500,000 in accident related PIP expenses and the MCCA gets to raise as much funds as needed on top of that. Technically those premiums are assessed on the insurance companies, but of course, they are passed on to policy holders.

Unfortunately, the highest insurance rates in the country will only go up for Michigan motorists who also will have to deal with higher gas prices and rising fees on vehicle registration and drivers license renewal. 

Michigan is home to the Motor City and Michiganders rely on the cars to get to work, drive kids to various events, maintain their property, and get out and enjoy Pure Michigan. They shouldn't be prevented from making their own informed decisions on the extent of car insurance PIP they need and be hampered by the highest auto insurance rates in the country. 


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