Alexander Alusheff

Lansing State Journal

LANSING – In October, an estimated 2 million Michigan drivers can expect to pay $40 more per vehicle for their auto insurance.

Auto insurers blame the rate increase on the removal of an $80 million tax credit from the state’s 2016-2017 budget. State lawmakers say the tax credit was unintentionally created in 2012 when they changed the organization that managed the auto insurers’ reimbursement fund, which took money out of the general fund.

The rate increase only affects customers of Michigan-based auto insurers, such as Auto-Owners, AAA or Frankenmuth Insurance. Michigan-based insurers provide service to one-third of Michigan drivers. The tax credit was never available to out-of-state insurers, such as State Farm.

“That money created a hole in the budget. We would have had to make cuts in a number of places,” said State Rep. Al Pscholka, R-Stevensville, who introduced H.B. 5457 along with Rep. Jon Bumstead, R-Newaygo, and Rep. Earl Poleski, R-Spring Arbor.

Prior to 2012, Michigan-based auto insurance companies paid money to a fund managed by the Secretary of State’s office. The fund would reimburse companies when they had to cover damage caused to their clients by uninsured drivers. To make the system more efficient, the Legislature had the Michigan Auto Insurance Placement Facility manage the fund, which accidentally made Michigan-based auto insurers able to receive a tax credit.

“Industry-wide, companies are very disappointed with the loss of this credit,” said Pete Kuhnmuench, executive director of the Insurance Institute of Michigan, which represents the Michigan insurance companies. “The burden is being forced upon the smaller pie of the (insured).”

2 million Michigan drivers could see insurance rate hike

Pscholka said if the tax credit helped save some insurance companies money, then their customers should have paid less. As a customer of Michigan-based auto insurer, Pscholka said he doesn't remember receiving credit or paying lower rates.

Despite Michigan-based companies receiving the tax credit, the total average premiums across the board increased in the state from $1,172 in 2012, to $1,264 in 2013, according to the most recent data from the National Association of Insurance Commissioners.

Premiums have increased every year since 2009 and will likely continue to increase each year largely due to the fact that it’s mandatory for insured drivers in Michigan to have unlimited personal injury protection (PIP). This means if an insured driver gets in an accident, their insurance company will pay all their medical bills related to that accident for the rest of their life if necessary, where most states have offer limited PIP or make the coverage optional.

Companies also have to pay for the bills of anyone else injured in the crash, including the passengers of the other vehicle if the driver of that vehicle is uninsured.

Auto insurers operating in Michigan paid a total of $2.9 billion for PIP claims in 2012, according to the NAIC report, which equates to average payment of roughly $65,000 for each of the 44,620 claims. The rising cost of medical care also has an impact.

Kuhnmuench said the tax credit only helped slow the rate of the increasing premiums.

Both Kuhnmuench and Pscholka agree that reform needs to be made to make rates more affordable. Kuhnmuench said auto insurers would like to have PIP have a cap on the amount of coverage, which would lower rates for customers.

But that's easier said than done.

"It's been looked at for years," Pscholka said. "Several bills have been introduced over the years, but they don't have the votes."

For now, Pscholka suggests people compare insurance company rates to see what best works for them.

Alexander Alusheff is a reporter for the Lansing State Journal. Contact him at (517) 388-5973 or aalusheff@lsj.com. Follow him on Twitter @alexalusheff.