The state fund propping up Michigan’s no-fault auto insurance system is facing a lawsuit to force administrators to open their financial books, highlighting increasing costs behind the system and the urgency with which insurance companies and policyholders are pushing reform efforts, according to AutoInsurance.com.
The Brain Injury Association of Michigan (BIAMI) filed a lawsuit against the Michigan Catastrophic Claims Association (MCCA) Wednesday to gain access to financial records that it called “essential information” for the state’s motorists. The MCCA administers a state fund compensating insurers for crash-related injury claims exceeding $500,000.
“This lawsuit is about transparency and access to information,” BIAMI president Mike Dabbs said in a statement, adding that “common law” supports residents’ right to see such data because they “largely fund the system.”
The stakeholders have been wary of costs incurred by the MCCA, which some say is nearing financial insolvency because of the state’s no-fault laws that require crash-related medical expenses to be covered for a policyholder’s entire life, regardless of who was at fault for the crash.
An April study from the Insurance Research Council (IRC) showed that, between 2002 and 2011, the no-fault system had seen 192 percent growth in total losses, with about a 13 percent increase each year.
Elizabeth Sprinkel, senior vice president of the IRC, said that “a relatively small number of very large claims play in the increased costs to the entire Michigan no-fault system.” The report found that just 1 percent of claims in 2011 involved losses greater than $250,000, but those claims amounted to 22 percent of total paid claims losses.
Last October, American Insurance Association (AIA) president David Snyder testified before a state House committee on the no-fault system, saying it needed major reforms to stave off a “death spiral” of increasing claim costs and unsustainable financing.
The average claim payout jumped from about $28,200 in 2007 to about $36,800 in 2011, Snyder said.
Technically, insurers pay into the MCCA through a per-vehicle fee charged to motorists in the state, but costs are passed onto consumers through their premiums. The MCCA fee is slated to increase from $145 to $175 in July.
According to a March MCCA press release, the fee is on the increase to help cover what has become a $2 billion estimated deficit.
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