Only One Auto Insurance Reform Plan Worth Pursuing

HB 5013 will reduce premiums, competing reform bills may increase them

Two competing proposals have been introduced in the Michigan House that would reform auto insurance in this state. The first is a hefty bill that would substantially change current laws, leading to more choices and lower premiums for drivers. The second is a package of 11 bills that also contains some cost-savings components but, on the whole, may actually make auto insurance even more expensive.

House Bill 5013, sponsored by Rep. Lana Theis, R-Brighton, has a clear and consistent goal: Reduce the costs of insurance for Michigan drivers. It lets drivers choose a lower level of coverage and receive a discount on their premium. It limits what medical providers can charge insurers for certain services. And it provides Michigan’s senior citizens the option to opt out of purchasing expensive medical coverage if they already have coverage through a health insurer, such as Medicare.

The 11-bill package (House Bills 5101-5111) does limit what medical providers can charge for services, but sets higher rates and exempts some services. Implementing any type of fee schedule should reduce premiums for drivers because the status quo essentially allows medical providers to charge as high a price as they think they can get away with. But aside from this proposed fee schedule, the 11-bill package provides hardly any other meaningful cost-savings reforms, and, in fact, would likely lead to an increase in auto-related litigation and a corresponding increase in auto insurance premiums.

The reason these reforms would increase costs is that six of the bills are aimed at making it easier for people to qualify for auto insurance benefits and for attorneys to win lawsuits against insurance companies. For instance, HB 5106 proposes allowing people to claim benefits from a policy that is fraudulent, so long as the person receiving the benefits was not directly responsible for the fraud.

An illustration might help explain this. Imagine that I obtain an auto insurance policy that covers my wife and me but I commit fraud by lying on the application or claim forms for the policy. HB 5106 would enable my wife to still receive benefits under this fraudulent policy, as long as she was not complicit in the fraud. This effectively reduces the penalty for committing fraud and creates stronger incentives for people to try it.

A main focus of a couple of bills in this package is to lower the “causation standard,” a legal term referring to the connection that needs to be established between an auto accident and an injury before someone can be awarded benefits in a lawsuit. Lowering this standard will make it easier for attorneys to win lawsuits against auto insurance companies and force insurers to pay out more in benefits. Insurance companies would need to price the costs of this increased risk of being sued into their premiums, meaning Michigan drivers would pay more.

Another bill in the package makes it even easier to sue insurance companies by requiring insurers to live up to vague and ambiguous standards that, to our knowledge, do not apply anywhere else in Michigan law.

Although both proposed reforms under consideration in the House have cost-control elements, only HB 5013 creates real savings for drivers. The competing 11-bill package, may, in the end, actually work to increase the cost of auto insurance in Michigan. That would be a remarkable feat, given that Michigan drivers already pay some of the highest premiums in the entire country.

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