LANSING – Last year, Michigan’s lawmakers passed a sweeping auto insurance reform bill that everyone was told would make insurance much more affordable, especially in Detroit.
“This is outstanding. An excellent bipartisan bill that will significantly cut rates for Michigan drivers,” Detroit Mayor Mike Duggan said when the bill was passed.
But the truth is that it really does nothing of the kind.
What it will do when it takes effect July 2 is make the situation worse for just about everyone. People may indeed pay a little less than they have been — although some will pay more.
The savings, according to one respected insurance consultant, won’t make nearly enough difference to most drivers.
And worse, everyone will have far less protection than they did from the consequences of a catastrophic accident. The insurance companies, however, will likely make as much or more than ever.
“This is one of the worst possible outcomes you can imagine,” State Rep. Yousef Rabhi (D-Ann Arbor) told me at the time.
Here’s how this happened: Michigan indeed has had some of the highest car insurance rates in the nation for years – and Detroiters paid more than anyone else.
Two years ago, one survey found that someone who paid $1,277 a year for car insurance in Cleveland would have paid $5,414 had they moved to Detroit. This has made it hard to attract people to the city, which has steadily lost population for decades.
Detroit Mayor Duggan lobbied hard for change, and he finally got it. Under the law passed last year, all auto insurers do have to reduce rates on the personal injury protection, or PIP portion of their policies, by between 10 and 45 percent.
They are required to keep those rates lower for at least eight years. That sounds good — but what the insurance companies and the politicians aren’t saying is that motorists will now be at far more risk of being ruined or worse if they get into a disastrous car accident.
Here’s why. Until now, every driver in the state has been covered by something called the Michigan Catastrophic Claims Fund, which paid all medical bills over $550,000 – for life — for anyone badly hurt in an accident, regardless of who was at fault.
Everyone was required to pay into that fund, which has so far taken care of the bills for more than 40,000 people.
Conventional insurance policies usually provided $250,000 to $500,000 in personal injury coverage, but a catastrophic accident can eat through that much in a matter of days.
Now, under the new law, drivers can carry as little as $50,000 in personal injury coverage – and many will, to save money.
But what happens if they get into a catastrophic accident, as some certainly will? The answer is … disaster.
Vladimir Konstantinov, a star defenseman on the Detroit Red Wings 1997 Stanley Cup-winning team, was terribly injured in a limousine crash later that spring. According to a source close to him, he has “the cognitive function of a small child,” and is totally dependent on a full-time staff of around-the-clock caregivers.
He has no hope of recovery. “But at least Vlady gets first class health care for the rest of his life. The only reason for this is that is he covered by the now-gutted lifetime catastrophic care package. Even with his wealth, he would have been flat broke long ago, and the taxpayers would be paying for his care, and it no doubt would be substandard care,” said someone familiar with him and the law.
Now, lots of people may be in the same boat. To be fair, motorists can still opt to be covered by the Michigan Catastrophic Claims fund. Those who do will be covered – but if they are at fault in an accident, the other party can sue them.
Insurance experts are recommending drivers purchase both the catastrophic claims and a liability policy to protect them. (Farewell, any savings.) But insurers won’t sell such liability policies to members of certain “high-risk” occupations, including writers.
Kevin McKinney, legislative coordinator for CPAN, the Coalition Protecting Auto No-Fault, said the group has held a number of forums on the new insurance law, and when people find out what is really in it, it quickly becomes unpopular.
There is another potential disaster in the making; the new law reduces the amount insurance companies are obligated to pay for medical care by as much as 45 percent. This could endanger 1,200 to 1,500 badly injured people who are in residential facilities.
“They can’t function on their own, and if the facilities have their fees sharply reduced, they may go out of business, and these folks would have no place to go,” McKinney added.
There is interest in the legislature on fixing the fee schedule, but it isn’t clear how quickly that can or will happen.
But what about the big selling point for the change – the idea that these reduced rates would make Michigan, and especially Detroit, a much more attractive place to live?
Douglas Heller, an independent consultant and a nationally recognized insurance agent in California did a rigorous study of Michigan’s new insurance law for CPAN. He concluded that when it came to making things more affordable, “the promise was hollow.”
The insurance companies will be making just as much money as they ever did, he said, and “for those residents who live in Detroit or who have less than perfect credit, the premiums … will continue to be unaffordable by all reasonable measures.”
(Editor’s Note: A version of this column also appeared in the Toledo Blade.)
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