MI Senate not “FAIR” and it’s a good thing

The Michigan Senate recessed last week without passing the proposed insurance reforms that would, among other things, prevent insurers from using factors such as education level, occupation, credit scores, and would prevent them from setting rates without approval from the state’s insurance commissioner. The proposal which was passed in the House hopes to reduce Michigan’s exorbitant premiums which rank among the highest in the nation.

Of course, simply suppressing rates insurers charge has never really worked in the long-run, usually causing more problems on a catastrophic scale. Additionally, this proposal completely ignores the actual reason for Michigan’s high premiums: the high cost of writing insurance in Michigan which is due in large part to the unlimited liability insurance are on the hook for. As Bob Hartwig noted in his press release earlier in the month:

While the cost drivers influencing the price of auto insurance in Michigan are similar to those in other states in most respects, there is one glaring exception—its unlimited threshold for no-fault auto insurance claims…No other state in the country provides unlimited no-fault benefits, and for good reason—with unlimited benefits come unlimited costs.”

Dr. Hartwig noted that the average no-fault auto insurance claim in Michigan rose an astounding 250 percent, to $31,883 in 2007 from $9,103 in 1998, because the “system operates with virtually no checks or balances.” Unlike almost any other state, Michigan has no medical fee schedules, no utilization controls or treatment protocols, and no state insurance fraud bureau to investigate and prosecute fraud and abuse in the no-fault system.
“Michigan’s unlimited no-fault threshold exposes the state’s drivers to the full force and fury of runaway health care costs,”
The average auto insurance policyholder in Michigan spent $928 in 2007 to insure his or her vehicle, compared with $795 for the typical U.S. driver in that same year, making Michigan’s rates the 11th highest in the nation.
As I noted in my article for the Detroit News, the higher premiums for Michigan drivers do not necessarily equal larger profits for the insurers as one might assume.

“While it’s true Michigan residents pay on average $150 more than the typical U.S. driver for insurance, it’s also true that during the last 10 years Michigan insurers made profits of just 2.1 percent compared with the national average return on profit of 8.4 percent.”

When the Michigan senate returns from recess, let’s hope that they take a stab at some auto insurance reform ideas that might actually reduce premiums for consumers, increase profits for insurance companies, and increase the vibrancy of a state in desperate need of revitalization.