Alexander Alusheff

Lansing State Journal

LANSING – About a third of Michigan’s insured drivers – or about 2 million people -- would see a $40-a-year increase on their auto insurance premiums if a tax credit that benefits the auto insurance industry is repealed.

The repeal of the tax credit is in Gov. Rick Snyder's proposed budget for 2016-17, freeing up about $80 million into the general fund budget, said Jim Stansell, senior economist for the House Fiscal Agency, a nonpartisan agency that provides financial information to the state representatives.

Prior to 2012, auto insurance companies in Michigan paid money toward a fund managed by the Secretary of State's office. This fund reimbursed the companies when they had to cover damage caused to their clients by uninsured drivers. In 2011, the Legislature passed House Bill 4455 changed it so the Michigan Auto Insurance Placement Facility managed the fund to make it more efficient. When some companies paid into that fund, however, they were eligible to receive a tax credit not previously available.

A host of groups called the Stop the Car Insurance Tax Coalition opposed the repeal. The group includes the Insurance Institute of Michigan, Michigan Chamber of Commerce, National Federation of Independent Business, the Michigan Insurance Coalition and the Lansing Regional Chamber of Commerce.

“If the credit is eliminated, it is the insured public who will pay through higher insurance premiums,” said Bev Barney, CEO of the Michigan Association of Insurance Agents, during a press conference on Tuesday morning.

The tax credit applies to all Michigan-based insurers as well as some out-of-state companies, said Pete Kuhnmuench, executive director of the Insurance Institute of Michigan. About one-third of companies that provide auto insurance in Michigan are eligible for the credit, he said. Some of those companies that would be affected include Auto Owners, AAA, Frankenmuth Insurance and Progressive in Michigan.

State Rep. Al Pscholka, R-Stevensville, the chair of the Committee on Appropriations, said repealing the credit fixes a problem created by a past Legislature.

"This was a mistake made back in 2012," Pscholka said. "We shouldn't have Hollywood-style tax credits for the insurance industry."

Pscholka was in office when the bill was first introduced and said no one was initially aware that it would create a tax credit when oversight of the funds changed hands.

Pscholka said he considers the threat of increased insurance rates "dirty politics."

"My advice to people would be to bid out their car insurance to find a cheaper rate," he said.

Pscholka said legislation eliminating that credit could be introduced this week. That money could be used to alleviate Detroit Public Schools' debt or help with the water crisis in Flint.

Tricia Kinley, senior director of Tax and Regulatory Reform for the Michigan Chamber of Commerce, said the proposal unfairly targets insurance companies.

“This proposal unfairly targets Michigan job providers who provide hundreds of thousands of direct and indirect jobs right here in Michigan,” Kinley said. “The root cause of this problem is the result of a skyrocketing no-fault system that leads to expensive and unaffordable car insurance.”

Contact Alexander Alusheff at (517) 377-1096 or aalusheff@lsj.com. Follow him on Twitter @alexalusheff.