How Do Michigan Auto Insurance Companies Pay for Lifetime Benefits?
Insured Michiganders have more coverage available to them than any other drivers in the country. If a policyholder in the state is seriously injured in a crash, his or her insurance company is required to pay for all necessary medical costs incurred as a result of the accident. The only other state that provides anywhere close to as much protection is New Jersey, where personal injury protection policies pay up to $250,000 for certain catastrophic injuries.
That prompts the question of how Michigan auto insurance providers are able to shoulder such a large monetary burden. And the answer is that Wolverine State coverage providers rely on a state-created catastrophic claims fund and higher-than-average premiums to keep their bottom line in check.
The Catastrophic Claims Association
The Michigan Catastrophic Claims Association (MCCA) was established in 1978 as a funding pool to help the MI car insurance companies cope with their huge financial responsibility to policyholders. Vehicle owners pay an annual fee to the MCCA, and those funds are used to help insurance providers pay for claims that exceed a certain dollar amount.
The fee size and upper limit for claims is reassessed each year. For the 2011–2012 fiscal year, the MCCA fee is $145 per vehicle, and that goes to cover any individual claims cost that exceeds $500,000.
In 2010 alone, the MCCA paid out $897 million to cover the portions of claims that exceeded $480,000 (the previous limit) that year.
Since the MCCA was first established in 1979, it has racked up an estimated $74 billion in claims costs on nearly 26,000 claims. Most of the claims covered by the MCCA involve brain damage incidents.
High Michigan Car Insurance Rates
Even though the MCCA has insurers’ backs when claims move past the $500,000 level, coverage providers still have to provide protection up to that threshold. One way they do that is to ask motorists for more premiums to compensate for their high average losses.
Average premiums regularly rank toward the top when compared to those of other states. In fact, Runzheimer International said that, in 2010, Detroit was the most expensive city in the nation for coverage. The company ran comparison quotes for a single car and coverage profile in different locations and found that the average annual premium would have been nearly $6,000 in the Motor City. Detroit’s average was 56 percent higher than the next highest city’s (New Orleans) and almost seven times as large as the least expensive city’s (Wapakoneta, Ohio).
In attempts to help lower rates, lawmakers have submitted a number of proposals that would throw out lifetime medical coverage and give drivers tiered levels of protection to choose from, but none of those attempts have been successful.