OAI: Uniqueness of Mich.'s Auto Insurance System Highlighted by Fee Hike

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The Michigan Catastrophic Claims Association will have to raise its fee once again to provide the lifetime insurance coverage that Michigan policyholders enjoy, according to OnlineAutoInsurance.com

An organization run by the state of Michigan announced last week it will have to increase the current $145 fee charged for every insured auto in the state by 21 percent next year to be able to help keep lifetime protection in place for drivers, a development that puts a spotlight on the unique coverage system in Michigan, according to OnlineAutoInsurance.com.

In Michigan, policies issued by car insurance companies provide policyholders with lifetime medical benefits for injuries they suffer in a crash. That's a contrast the to system set up in every other state in the nation in which policyholders choose how many thousands of dollars of coverage they want to buy, and then insurers provide compensation only up to that limit. 

As a result, payments made for individual auto insurance claims in the Michigan system can come in far above what they would in other states.

To relieve some of the financial strain the system puts on coverage providers, the state set up the Michigan Catastrophic Claims Association (MCCA). The MCCA collects an annual fee from coverage providers for every car they insure. With those proceeds, the MCCA reimburses insurers for any compensation they provide on a claim above the $500,000 threshold. So if an insurer gets a $750,000 claim, it will pay for it entirely at first but will eventually get $250,000 in reimbursement from the MCCA.

According to the MCCA, there have been 28,000 claims reported to the Association since its inception 33 years ago, and those claims are projected to cost about $85 billion total. 

The current MCCA fee is $145 per insured vehicle. But in July that will be bumped up to $175 based on projections of anticipated claims and the need to cut back on the Association's current multi-billion-dollar deficit.

While the MCCA fee is charged to insurers, it is usually "passed on in whole or in part to the policyholders," according to the Office of Financial and Insurance Regulation. 

Source: http://www.michigan.gov/documents/cis_ofis_noflt_gd_25094_7.pdf

There have been numerous attempts by lawmakers, even in the current legislative session, to fundamentally change the system by introducing dollar limits on policies. None of those efforts, though, have made it very far.

For more on this and other coverage issues, head to http://www.onlineautoinsurance.com/companies/ for access to informative resource pages and an easy-to-use quote-comparison generator.

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Benjamin Zitney
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