Could the no-fault auto insurance reform lower car insurer loss ratios? According to Fitch Ratings, in the years 2009 and 2010, the loss ratio was 75 percent in no0fault insurance states compared to 63 percent in the years 2006 to 2010. Higher loss ratios indicated that car insurers are paying higher claims in these no-fault states compared to others with Michigan having the highest loss ratio of all the no-fault states in 2011. With no-fault state laws there is a lot of room for potential fraud. Because the law requires no proof of fault, policy holders are reimbursed for their accidents. We all would like to believe that every person would use this system honestly, but unfortunately that is not always the case. In these situations, fraud claims are much more successful than if the claim would reach the courtroom, resulting in higher loss ratios.
What does this all mean for Michigan insurance policy holders? This new proposed reform for Michigan (and many other no-fault insurance states) addresses rising premiums by limiting the no-fault benefits and setting up a billing plan for medical services. Under current law, the insured receive unlimited lifetime medical services which are covered by insurance companies and the Michigan Catastrophic Claims Association (MCCA). The MCAA reimburses the primary insurers for medical claims exceeding $500,000.00.
Other no-fault insurance states are taking a closer look at the facts and figures of the past and also plan to change the laws so that they become more strict in effort to reduce the possibility of fraud resulting in high loss ratios.