AIA: Michigan Report, Governor's Call Unrealistic

The American Insurance Association (AIA) today rejected a report on Michigan’s auto insurance market and the governor’s call for a rate freeze on auto rates as unrealistic given the system’s real costs and offered more concrete money savings solutions to help consumers.

“The advocate’s report ignores the very high costs inherent in Michigan’s no-fault auto insurance system and makes regressive policy recommendations that could harm an otherwise stable, competitive market,” said David Snyder, AIA vice president and assistant general counsel. “Unless the governor can freeze medical, litigation, motor vehicle crash and other costs, this is simply anti-competitive, anti-business and anti-consumer grandstanding. It’s time to move beyond politically charged arguments against an industry that provides financial security and good jobs to thousands of area residents and examine legitimate solutions to create a more efficient, less costly system.”

Michigan’s insurance consumer advocate held statewide hearings last November to help prepare his first annual report to Gov. Granholm, released today. Coupled with the report, the governor has called for a 12-month rate freeze on auto insurance rates.

AIA submitted comments to the advocate offering viable solutions to address deficiencies in the state’s auto insurance market, concluding that “the current competitive Michigan insurance market is cost effectively providing the nation’s most extensive auto insurance benefits at affordable rates considering the underlying costs and expenses. Those rates also accurately reflect comparative risk, and are comparatively affordable considering the very large mandates.”

“In 2007, the average PIP claim in Michigan had increased more than 290 percent since the mid-1990’s to $29,392 compared to $8,458 in all other no-fault states. This is an unsustainable trend resulting from fast rising medical costs – a major component of PIP benefits, possible fraudulent claims padding and a lack of benefit level choices. Yet, despite these strains, the average price of auto insurance in Michigan is relatively affordable – 13th nationally – and reflects significant competition among insurers,” said Snyder.

According to AIA’s comments to the advocate:

• Medical costs are 2.5 times higher in Michigan [than 1983 base] which explains much of the cost of bodily injury and PIP auto insurance.

• Trends show that Michigan premiums are not spiraling out of control. In fact, the average Michigan premium in the latest (2006) National Association of Insurance Commissioner’s countrywide comparisons showed a decline of 6 percent since 2004, and is at its lowest level since 2002.

• Other solutions, such as investments in mass transit and commuting options, safe driver education, etc., exist and should be explored.

“Counter to what the advocate claims, making onerous changes to the state’s well functioning rating law that creates a more restrictive business environment will not serve consumers as well as promoting competition and providing fair, balanced regulation. Nor does it help to have the governor use the Office of Financial and Insurance Regulation as a political tool instead of allowing the commissioner to be an objective regulator,” added Snyder.