Decision Maker Response

Mary Cavanagh’s response

Mary Cavanagh
State Representative

Dec 4, 2014 — Thank you for contacting my office through this petition, “To change the laws regarding the Auto Insurance Policies form No-fault to At-fault policies and demolish the “unlimited” personal payout to the insured involved in accidents”.

While there are my many different sides to the no-fault issues that had been portrayed in the media so may believe that by just eliminating the no-fault system and becoming an at-fault system will “cure” high automobile insurance rates in the State of Michigan. That is just untrue. Michigan voted for a no-fault system and then voted again (in or around 1994) to keep that no-fault system.
The elimination of lifetime coverage for catastrophic accidents will result in a substantial cost shift to the Medicaid and Medicare systems, thus raising taxes and forcing competition for a very limited pot of funds. The under-funding of treatment for severely injured auto accident victims will result in thousands of jobs lost in the medical care industry. Michigan residents who cannot afford the highest level of coverage created under this legislation could face inadequate medical care or financial ruin if a catastrophic injury results from an auto accident.

If those proposing such reforms were serious about reducing auto rates in Michigan, they would look at the MCCA (Michigan Catastrophic Claims Association). MCCA is a private organization that provides for the care of Michigan drivers who are catastrophically injured in an auto accident. It reimburses no-fault auto insurers for all benefits that exceed $500,000, spreading costs among all motorists since every Michigan driver is required by law to carry valid insurance.

The association has raised its annual rates from $5.60 to $175 per insured vehicle since 2000 – an increase of 2,489 percent, without having to explain whether these increases are necessary. All the voting members of the board represent big insurance companies.

Insurance companies claim that the reforms are needed because the MCCA is not financially stable enough to continue reimbursing for catastrophic claims. Yet financial information regarding the MCCA is not public and these claims are impossible to verify. It has been estimated that the MCCA controls $14.9 billion in assets, yet the insurance industry refuses to support legislation that would require the MCCA be subject to public scrutiny.

In March of this year, I introduced bi-partisan legislation to add accountability and transparency to the insurance industry. The bills would:

• Make the MCCA Board subject to the Open Meetings Act and the Freedom of Information Act. This means that decisions must be made at public meetings and documents must be made available upon request.
• Add one member representing the public to the MCCA Board and makes the Commissioner of the Office of Financial and Insurance Regulation (OFIR) a voting member.
• Require that an independent Certified Public Accountant appointed by the Commissioner conduct an annual audit of MCCA and report to OFIR and the House and Senate Insurance Committees.

Additionally, the Detroit Caucus has been working on an alternative package that would ACTUALLY help lower insurance rates. Among the topics we are focused on are eliminating file and use, a practice which allows insurance companies to raise rates without any justification; preventing insurers from considering education, credit score and occupation when they are calculating premiums and surcharges (currently under this practice a convicted drunk driver will actually have a lower insurance rate than a person with a perfect driving record and less education); requiring insurers to spend 80% of their premiums on clients or refund the difference, and several other important factors that could result in lower premiums for drivers in Michigan.
Every Michigan driver will be affected by the proposed changes to our no fault insurance system. We deserve to know the full picture before making a decision that will have such broad sweeping and potentially negative consequences.

I could not support any auto insurance reforms that did not look at every component of auto insurance to truly decrease rates across the board.
Thank you again for contacting me regarding issues that are important to you. Believe me as someone who insurers multiple vehicles with three young drivers in my household, and living just miles outside the city of Detroit, I would love to have been able to tackle the issue of high auto insurance rates.


Phil Cavanagh
State Representative,
10th District

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