Michigan motorists gear up for hike in car insurance

Gina Roberts-Grey

Drivers in Michigan are bracing for a bump in their car insurance premiums in July 2012. The culprit? A "tax" that covers the costs of treating catastrophic injuries caused by car crashes.

The nonprofit Michigan Catastrophic Claims Association -- which reimburses catastrophic personal injury claims exceeding $500,000 -- is raising its annual fee from $145 to $175 per vehicle effective July 1, 2012.

This means the premium for every insured car in Michigan will climb by $30. That's on top of some of the highest car insurance premiums in the country -- an average of more than $2,000 a year in Michigan. The average premium nationwide: more than $1,500 a year.

A unique fee

Michigan is the only state that charges a fee to cover costs for serious auto injuries. Under state law, any Michigan motorist who carries car insurance is entitled to lifetime coverage for medical expenses for catastrophic injuries caused by auto accidents. Those injuries include traumatic brain injury, paralysis and severe burns.

Laurie Ryan, a motorist in the Detroit area, doesn't like her state's catastrophic claims system.

“I’ve never had a ticket or car accident, yet I have paid thousands to cover medical bills for others’ accidents. That doesn’t make sense to me,” Ryan says.

Representatives of the Michigan Catastrophic Claims Association couldn't be reached for comment.

Neither Ryan nor any other insured driver in Michigan can get away with not paying the fee, though. All car insurance companies doing business in Michigan must participate in the catastrophic claims program; those insurers pass along the fee expense to their customers. In 2011, the association paid more than $927 million in claims, which equates to more than $133 for every registered car in the state.

Michigan is unique among the 12 states with no-fault car insurance. Its no-fault law offers unlimited medical care under mandatory personal injury protection (PIP) coverage, yet the law doesn't cap prices for common types of crash-related medical treatment. No other state has a coverage setup like that.

Since 2011, Michigan motorists have been able to buy different levels of PIP coverage, with the lowest level now at $500,000. The hike to $500,000 was prompted by concerns that many accident victims would be unable to pay for medical treatment. If medical bills exceed $500,000, the costs are reimbursed through the claims association, which was established in the 1970s. The nonprofit association now covers the medical bills of nearly 13,000 accident victims.

Fees in other states

Michigan isn't the only state where insured motorists pay "extra" costs.

For instance, every car insurance policy in New York includes a $15 fee for “motor vehicle law enforcement,” up from $10 when the fee first took effect in 2009. The money helps law enforcement agencies in New York recover stolen vehicles.

Then there’s Florida’s “fraud tax." In 2011, the average motorist in the Sunshine State paid an additional $58 per car for insurance to cover millions of dollars in costs related to insurance fraud, according to the Insurance Information Institute.

Insurance fraud costs are passed along to consumers in Florida and other states. Loretta Worters, a spokeswoman for the nonprofit Insurance Information Institute, says Florida’s fraud tax is calculated by figuring what drivers should be paying for insurance based on industry data and subtracting that amount from what drivers actually pay.

“Since 2009, Florida drivers have paid nearly $1.3 billion in higher premiums because of fraud," Worters says.

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