The Insurance Institute of Michigan, the influential public affairs voice of insurance companies in the state, has reacted sharply to last week’s front page article in the Michigan Chronicle, “Mr. Mayor, Stand Your Ground on Redlining,” regarding Detroit Mayor Mike Duggan’s call for insurance reform in his first State of the City Address.
Duggan talked about a campaign promise to create D- Insurance to lower the exorbitant rates that Detroiters are paying for auto insurance.
“It is not justified. It doesn’t matter if you have a perfect driving record and never been in an accident. Most Detroiters are paying more a month for car insurance than the car payment itself,” Duggan said bluntly in his speech.
In a letter sent to the Chronicle, Pete Kuhnmuench, the executive director of the Insurance Institute of Michigan, who has been the face of the industry for years, said, “When ‘redlining’ is used to mean discrimination based on race, this is illegal and is condemned by the insurance industry. However, many times the term ‘redlining’ is used incorrectly to describe the differences in price and availability of insurance based on real risk,” in the recent Chronicle article.
Contrary to popular belief, Kuhnmuench said, “The Insurance Institute of Michigan has worked for years to reform the state’s one-size-fits-all no-fault auto insurance law to lower the price of the product for everyone in the state. Detroiters would benefit from lower auto insurance premiums. That is a fact.” He did not provide examples of that fact and described efforts by former Insurance Commissioner Linda Waters to reform the industry as “an attempt to stifle the insurance industry but that attempt failed because a study she commissioned showed that Michigan premiums were not excessive or discriminatory.”
A former Michigan governor, Jennifer Granholm, adviser said Waters, an African American, spearheaded an effort to address the redlining issue, including leading a fight against using credit scoring to determine insurance premiums, which the insurance companies vigorously fought.
Commissioner Watters was also tasked with the assistance of the Governor’s Office of Faith Based and Neighborhood Partnerships, the first such office in Michigan’s history, to identify clergy in Detroit, Flint, and Saginaw (as a start, that would be replicated in other cities) to recruit congregants and residents in their church neighborhoods to form a pool of potential insurance customers.
“The former governor believed, as did many who advised her on this issue, that we needed to use leverage with targeted insurance companies,” the adviser said.
However, the Insurance Institute said, “Michigan law is very specific in prohibiting the use of discriminatory factors which have no actuarial basis for predicting risk. It is not just Michigan urban dwellers who pay more for car insurance. People living in large metropolitan areas throughout the U.S. pay considerably more than do those residing in rural and suburban areas. Insurance payout is higher, so premiums have to be higher.”
Kuhnmuench, who wrote a letter to Duggan saying creating a D-Insurance would be a difficult task, said his organization welcomes the idea into the marketplace. “However, don’t get overly optimistic, adding a city- run insurance company in Detroit may increase competition but does nothing to address the real cost factors driving up premiums for all Michigan residents,” he said.
He also noted that “the real way to lower auto insurance premiums in Michigan is to address inflated costs of medical treatment, fraud and a system which puts limit on benefits.”
But in social media, especially Facebook, not everyone is buying the argument of the Insurance Institute of Michigan.
Detroiter Bernard Goldfinger said, “We’ve been overcharged for insurance for years. Worth the effort to do something different.” And Rachel Saltmarshall agreed in the call to rally support around the D-Insurance proposal: “Yes, I will stand by him. My homeowners insurance went from $3,200 in 2010 to now $5,085 with no claims on my policy. All they (insurance company) could tell me was that the rates went up all over Michigan. However I don’t hear the suburbs complaining.”
Sheila Huges, an agent at Nationwide Insurance disagrees and cites a study from the RAND Corporation which she said found that in Michigan, the average claim settlements per accident were 57 percent higher compared to other states.
“Michigan residents are more likely to seek reimbursement for a wider range of medical treatments, including hospital and emergency room visits. Additionally, Michigan residents are more likely to use expensive procedures, including X-rays or CT scans, and to claim reimbursement for lost work hours,” Hughes said.
Perhaps that study might have influenced efforts by Republican lawmakers in Lansing to repeal the state’s no-fault insurance policy, which would put a cap on insurance claims.
But some Democrats, like Saginaw State Rep. Erwin Oakes, who is a former assistant Attorney General in the Office of the Michigan Attorney General, debunking the move to cap claims.
“In Michigan, if you have a catastrophic accident, your medical expenses, wage loss, replacement services and damages caused to other people’s property are covered. Benefits are paid out of the Michigan Catastrophic Claims Association (MCCA), a private nonprofit association every Michigan driver pays into,” Oakes said. “As of 2013-2014, insurance companies assess $188 per vehicle (including tax) to cover catastrophic claims. Under no-fault, the insurer pays the claim and is reimbursed by the MCCA for medical costs exceeding $500,000.”
She said recent efforts to cap and restrict coverage are very similar to what the people of Michigan decisively rejected by statewide vote in 1992 and 1994.
Oakes said, in 2011 and 2013, Gov. Rick Snyder’s proposed no-fault reforms failed to garner the necessary legislative support.
“Now we have yet another proposal to hastily cap and restrict coverage without any assurances that it will save taxpayers and motorists money,” Oakes said. “In reality, it will increase costs to taxpayers. Proponents of the reforms deceivingly contest that no-fault is the cause of our state’s high auto insurance rates. This is false. You have to examine the averages amongst states for each portion of the policy. In doing so, you see that no-fault isn’t the culprit.”
Oakes, who used to serve as assistant attorney general in the Office of the Michigan Attorney General, said the average uncapped lifetime Personal Injury Protection (PIP) benefit costs Michigan drivers $544.20 per year, only $60 above the national average of $484.03.
“Michigan’s safeguards, protections and medical benefits are far superior to every other state for a nominal cost of $60 annually, evidence that we’re getting a tremendous return on our investment,” Oakes said. “Collision insurance is the most expensive portion of our policies. This is where we must focus our attention if we’re going to be successful in reducing auto insurance costs.”
Oakes said Michigan is one of the few states where an accident survivor is certain to receive immediate medical attention, while in other states.She also said the legislation would allow insurers to cease coverage if the injured person fails to improve fast enough.
Bankole Thompson is the editor of the Michigan Chronicle. Email bthompson@michronicle.com.
