Tuesday, 13 September 2016 09:34

Is No-Fault Auto Insurance to Blame for High Rates, Fraud?


Michigan House members returned to work the week of September 5 to decide whether they’ll give the state’s motorists a break on their highest-in-the-nation auto insurance premiums.

In doing so, they’ll decide whether to dilute the nation’s most stringent no-fault auto insurance law, which requires drivers purchase coverage that provides unlimited lifetime medical benefits, and continue a trend among states of altering or even scrapping their no-fault laws.

For many Michigan motorists--who pay on average $2,738 a year, more than double the national average--the decision would appear simple enough.

“Customers are saying it’s getting tougher and tougher to pay those premiums,” said Lori Conarton, a spokeswoman for the Insurance Institute of Michigan, which represents insurance companies.

But caught up in the Michigan debate is whether to also limit how much doctors and hospitals get reimbursed for injuries caused by car crashes and constrain payouts for people who abandon their jobs to care for an injured loved one.

Michigan is one of a dozen states still requiring no-fault insurance, which assumes each driver’s insurance company will cover the cost of treating injuries regardless of who caused the wreck. (Damage to vehicles and property are typically covered under the collision and comprehensive portions of insurance policies.)

The idea behind no-fault laws was that insurance companies would deliver faster payouts to crash victims and lower premiums in exchange for caps on damages and limits on consumers’ ability to sue.

By the mid-1970s, 16 states had embraced the idea. But the benefits promised didn’t come to fruition everywhere. By the early 1990s, insurance premiums had increased, drivers were suing their insurers over coverage benefits, and fraud had become rampant. Some states found themselves in the position Michigan is in now. They altered their no-fault laws or dropped them.

It’s a situation that Florida lawmakers also find themselves in. They’ve looked at a proposal to scrap their no-fault law. In New Jersey, lawmakers have expanded caps on reimbursement rates for certain medical procedures. Both states have no-fault laws and are among the 10 states with the highest auto insurance premiums.

Michigan’s highest-in-the-nation premiums can be attributed to the requirement of providing unlimited lifetime medical benefits and care, which no other no-fault state has, Conarton said.

Her group estimates premiums could be cut by as much as 45 percent if House members agree to a bill, which the Senate has passed, that would limit how much insurers have to pay for specific medical procedures and allow drivers to choose the amount of medical coverage they get.

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