On the heels of the Detroit Free Press’s recent articles on Michigan’s high auto insurance rates, the Republican controlled Michigan state senate introduced a number of bills overhauling Michigan’s no-fault law system. And it’s a complete windfall for the auto insurance industry. Heads they win, tails you lose.
At the outset, let me just say the timing of the articles and the subsequent introduction of these bills is extremely suspicious. I mean it’s too perfect that two separate articles detailing some of the problems with our state’s no-fault system are written and published only days before our state’s highest legislative branch takes up the no-fault system. I mean how often does the Detroit Free Press even write about automobile insurance rates? One, maybe two times per year? However, without getting too paranoid, I think it is important to look at what is at stake for our state’s motorists, car accident victims and their families, and Michigan’s long-term fiscal strength.
First a quick introduction is needed. Presently, and for roughly the past 35 years, car accident victims are entitled to certain “no-fault” benefits if they were involved in a car accident.
These benefits are also called “personal injury protection” or PIP. Basically, the auto carrier responsible for the claim is responsible to pay for all reasonable medical bills related to the car accident. This includes hospital bills, doctor bills, prescriptions, wheelchairs, rehabilitation and home health care. These benefits are unlimited in dollar amount and extend for the entire period of disability.
In return, Michigan motorists must meet a statutory threshold to sue for pain and suffering damages. This threshold (or hurdle) has moved up and down over the years, but in reality only severely injured people are even eligible to recover pain and suffering damages. If you hurt your back in a car accident, but only received some physical therapy and missed only a couple of weeks of work, forget about it. You aren’t getting a dime.
No other state has a no-fault system quite like Michigan.
So that is the current basic state of Michigan’s no-fault law. Now what do the newly introduced senate bills say? Well, for this blog post I’ll get right at the most important one, Senate Bill 293.
SB 293 wants to completely change the unlimited medical coverage afforded to motorists. Instead, people will be able to “choose” how much medical coverage they want – in increments of $50,000, $100,000, $200,000, $400,000 or unlimited. This sounds democratic and logical on paper – after all shouldn’t we be able to choose how much insurance we want to pay for?
But in reality, almost nobody knows about “personal injury protection” and the medical benefits our current no-fault system affords. Instead, people will select the smallest amount ($50,000) because it will result in the lowest premium payment. Insurance salesman, guys desperate to make a sale by quoting the lowest price, will only offer the $50,000 amount to their ignorant customers. What’s scarier are the people who will chose this small amount are the poorest and most susceptible among us, the people most likely to have no health insurance to cover them or their family if involved in a car accident. And let’s face it, $50,000 does not cover very much these days. A simple MRI runs over $5,000 and don’t even think about how much a basic knee operation or back surgery costs.
In return, the insurance companies will save tens of millions of dollars in non-payment of claims. At the very same time, the high threshold in place to prevent the recovery of pain and suffering damages will remain in place. The insurance industry gets the best of both worlds – limited payment of medical claims and limited payment of pain and suffering claims. Talk about a great business model!
Now all of this will be sold to the public in the usual way – more “freedom of choice” and lower premiums. But like the price of oil, car insurance will never decline over the long term and people are still forced to purchase car insurance in a market that provides little to no information to consumers purchasing the product.
The insurance industry will promise lower premiums to drivers on our roadways and highways. And maybe for a year or two we will see lower premiums. But I don’t believe it. There is nothing in any of these new senate bills that explicitly guarantees lower insurance premiums for drivers. There is nothing in these new senate bills that asks insurance companies to open their books so experts and motorists can examine exactly how much in claims these companies actually pay a year.
Instead I see the inevitable situation – insurance companies continuing to gouge policyholders while at the same time paying out a fraction of the claim money they were paying out only a few years earlier.
Heads they win, tails you lose.