Why auto insurance costs go up after $400 refunds

In the spring, eligible Michigan drivers received a $400 reimbursement check from their auto insurance companies, the purported proceeds of savings from a 2019 law that imposed cost controls on long-term care for seriously injured drivers.

Now auto insurers want to recoup $48 from a sudden $3.7 billion shortfall to the Michigan Catastrophic Claims Association, the multi-billion dollar trust fund for motorists who suffer horrific injuries.

Auto insurers are publicly blaming the shortfall on a Michigan Court of Appeals ruling that, if allowed to be upheld by the Michigan Supreme Court, will restore medical benefits for injured drivers.

But there is another factor that has hampered the trust fund: the stock market crash.

Much like nearly everyone’s retirement savings or 401(k) pension fund, MCCA assets have taken a hit on Wall Street.

Last November, when Governor Gretchen Whitmer called on the MCCA’s auto insurance board to liquidate up to $5 billion in cash from the fund in the form of per-vehicle reimbursements, the fund had recorded $27 billion. in assets and approximately $22 billion in liabilities, leaving an apparent surplus.

The $27 billion figure was the fund’s actuarial value as of June 30, 2021, according to MCCA financial records.

But between July 1, 2021 and June 30 this year, MCCA investments lost $2.8 billion in value, MCCA Executive Director Kevin Clinton said.

In total, the MCCA’s trust fund shrunk by $5.9 billion – about half from investment losses and the other half from refunds.

In the Andary decision, the Michigan Court of Appeals ruled that the 2019 law cannot retroactively reduce benefits that injured drivers were entitled to before they were injured.

The Michigan Supreme Court declined to block the state Court of Appeals ruling from taking effect while it considered the case, effectively stopping a 45% pay cut for medical providers which the MCCA used to calculate the excess — and the $400 refunds — in the first place.

The MCCA fund is used to cover bodily injury claims to insurance companies exceeding $580,000 for an individual accident.

After the judgment of the Court of Appeal in August. The MCCA’s board of directors — made up of insurance executives — voted Sept. 19 to increase its annual per-vehicle assessment by $48, effective July 1, 2023. It will increase the total fee for drivers who choose a unlimited medical coverage at $122 per year or about $10 per month.

The fee increase aims to recoup a projected long-term shortfall of $3.7 billion caused by the appeals court’s reversal of the 45% cut in payments to some medical providers, Clinton said. .

“The MCCA is required by law to assess any deficit on all vehicles over a period of at least 15 years,” Clinton said in an email to the Detroit News. “If the deficit were not amortized over 15 years and instead paid off in a single year, the amount would be approximately $490 per car.”

That $490 price per car acknowledges something Whitmer and other 2019 law advocates don’t: The $400 rebate checks each vehicle owner received in the spring were money that was supposed to pay for the long-term care of motorists who suffered paralysis, head and spinal cord injuries.

Since Whitmer publicly pleaded for refunds last fall, the Dow Jones Industrial Average has fallen 12% and the S&P 500 has lost 17% of its value.

The governor could not have predicted that roughly the fund would lose roughly the same amount of money in the market as was liquidated to distribute refund checks.

That said, injured drivers who rely on this fund to pay for their long-term care and their attorneys argue that the governor and the insurance industry jumped the gun with reimbursements before the lawsuit was settled.

“It was very premature and it seems politically motivated,” said Bob Mlynarek, co-owner of 1st Call Home Healthcare in Clinton Township, which had to stop serving several car accident victims due to the reduction of 45. % of payments. “They wanted to get the horse out of the barn before the appeals court ruled.”

clivengood@detroitnews.com