Whitmer seeks insurance refund. It could pay $80 to $700 per Michigan driver

March 11. 2022: Here’s when you will get your $400 car insurance refund in Michigan
Dec. 7, 2021: Michigan drivers to get insurance refunds of $400 per car from trust fund
Nov. 12, 2021: Michigan to allow two-year vehicle registration
Nov. 3, 2021: Michigan drivers to get car insurance refund from $5B surplus

LANSING — Michigan Gov. Gretchen Whitmer on Monday called on an insurance agency trust fund to "immediately" cut checks and refund drivers from what is now a $5 billion surplus.

Any refund is a long way away, and could range from as little as $80 a driver to $700 apiece, according to Bridge Michigan calculations.

Whitmer can’t order refunds, but she is not the first governor to urge them from the Michigan Catastrophic Claims Association, an industry-led nonprofit that collects an annual fee from all Michigan motorists to cover large medical care bills for severely injured crash victims.

Related:

• Opinion | Gov. Whitmer, you broke your promise to our auto-injured children
• Opinion | Legislature must help those injured in catastrophic auto accidents
• Opinion | This is no time to second-guess Michigan auto insurance reform

Former Gov. John Engler backed a similar plan in 1998, and the MCCA's board of directors that year voted to refund motorists a collective $1.2 billion of what was then a $2.5 billion surplus. 

Times have changed.

Michigan has a new auto insurance law designed to drive down what have been the highest rates in the nation by ending mandatory lifetime coverage for auto crash victims and creating a new fee schedule to cap medical bills.

The 2019 law, spearheaded by the Republican-led Legislature and signed by the Democratic governor, includes a refund mechanism to return a portion of surplus funds to motorists — but not until after an independent audit in 2022. 

Whitmer's plan is "both bigger and sooner than the law provides for," MCCA Director Kevin Clinton, a former state treasurer, told Bridge Michigan.

"That being said, I will pass the (governor's) letter on to the board, and I think the board will take serious consideration of it."

What Whitmer wants

In a Monday morning statement, Whitmer said “the over $5 billion surplus accumulated by the MCCA belongs to Michiganders and should be put in people’s pockets immediately with a refund check.”

That triggered speculation the governor was calling on the MCCA to use all its surplus funds on refund checks. But Whitmer was less specific in a letter to Clinton, and her office clarified her position Monday afternoon: 

Whitmer is “calling on the Michigan Catastrophic Claims Association to return the maximum amount possible while maintaining the viability of the fund, but the association will ultimately need to review and make a final determination,” spokesperson Bobby Leddy told Bridge Michigan. 

The distinction is important. A $5 billion refund would mean nearly $700 for every Michigan motorist. 

That’s far more than the roughly $80 per driver refund the new state law may require in late 2022.

A full $5 billion refund would eliminate any “safety net” at the trust fund, which is required to weigh its assets against long-term liability estimates to ensure its ability to pay future medical bills it is responsible for, Clinton told Bridge Michigan.

“If the law is changed, let's say, or if we have a bad judicial decision that makes us pay more, that's where that surplus would come in handy, because we could absorb it if we had extra money,” Clinton said. “That's really the purpose of it."

What the law says

Michigan’s new auto insurance law would generally require the trust fund to refund motorists if its assets exceed 20 percent of its liabilities, beginning after an independent audit in 2022 and every three years after that.

Under that language, the MCCA would need to refund motorists a collective $588 million of its $5 billion surplus, about $81 per driver. 

Sen. Aric Nesbitt, a Lawton Republican who sponsored the 2019 law, accused Whitmer of trying to score political points by calling for an immediate refund before she is up for re-election in 2022.

"I think she's trying to figure out how she can move (the refund) up earlier and take credit for it in an election year," he said. 

While Nesbitt likes the idea of a refund, he told Bridge that policymakers agreed it was important to "do an audit first" before requiring the MCCA to cut checks, and that is not scheduled to happen until July of 2022. 

"With these reforms that we've created, we've seen the savings," Nesbitt said. "Let's make sure they materialize, and let's make sure that if there is any excess, that they're returned to the drivers."

Why the MCCA surplus is surging

The Michigan Catastrophic Claims Association last year cut its annual fee that insurers pass on to motorists from $220 to $100. And yet the MCCA's surplus more than doubled from $2.4 billion to $5 billion the same year. 

The pandemic may have at least some role, because fewer drivers were on the roads in 2020 during stay-home orders and remote work, according to Clinton.

But reforms in the 2019 law were a “huge piece of it,” he said.

In particular, the MCCA director credited a new fee schedule that limits the amount medical providers can charge insurers for auto accident claims. While that fee cap only took effect in July, it allowed the MCCA to lower its long-term liability projections, leading to a larger surplus, Clinton said. 

“Our costs were spiraling out of control, and the fee schedule I think certainly helps,” he said. 

What this means for fee schedule reform

The fee schedule, which Clinton credits with helping grow the surplus, is also arguably the most controversial portion of the new law. 

Critics fear it will force specialized rehabilitation facilities and in-home caregiver companies out of business, ultimately creating a “second tragedy” for crash victims who can require lifetime services.

Michigan consumers “deserve relief from greedy auto insurance companies,” but taking money from the catastrophic claims fund would be a “slap in the face to the survivors and families who have been begging for relief” from a “care crisis” created by the 2019 law, Devin Hutchings, president of the Coalition to Protect Auto No-Fault, said in a statement. 

Whitmer has urged the Legislature to change the law. And some lawmakers from both sides of the aisle have proposed changing the fee schedule to ensure auto crash victims keep access to specialized care. 

Nesbitt, the Republican lawmaker, said Whitmer is trying to have it both ways.

“Long-term care is the No. 1 cost driver in the MCCA,” he said. Ending or raising those fee caps could “make this refund almost impossible.”

Who needs to approve a refund?

If Whitmer wants the MCCA to issue a refund before it might happen anyway in 2022, she'll likely have to persuade the MCCA board, which is controlled entirely by auto insurers, including Auto Club, Auto-Owners and State Farm. 

Michigan Department of Insurance and Financial Services Director Anita Fox, a Whitmer appointee, is an "ex-officio member" of the MCCA board, which means she participates in debate but cannot vote on fees or refunds.

Fox backed Whitmer in a Monday afternoon statement, calling on "on the MCCA and its member companies to promptly issue refund checks to return the surplus to Michiganders.”

The governor could also partner with lawmakers: In 1998, the Michigan House approved legislation that would have required MCCA to cut checks for a $1.2 billion refund. The Senate never took up the bill but it had its desired impact: It pressured the MCCA board, which approved the proposed refund on its own. 

The MCCA board has sharply cut its annual vehicle fee in recent years following enactment of the 2019 reform law. It most recently dropped the fee from $100 to $86 per vehicle for the year that began in July. 

“One way or another, if we have excess surplus, if we don't need it to pay claims, it will go back to the drivers of the state of Michigan," Clinton told Bridge. "That's specifically in the law. It can't go to the insurance companies."