Three States Try to Lower Their Car Insurance Rates

Drivers in three states could see big changes in their car insurance -- and their car insurance bills.

Florida and Michigan both have no-fault auto insurance under the microscope during their current legislative sessions. It's a particularly hot topic in Florida, widely seen as the auto insurance fraud capital of the country. (See "Where car insurance fraud is a sport.")

In no-fault states, drivers give up some of their rights to sue in return for a guarantee of immediate medical treatment.

In California, the focus is on the state's "persistency discount," which gives drivers a break on car insurance rates if they remain with the same auto insurer, but disappears if someone switches insurance companies.

Florida: 'Fix it or get rid of it'

Florida has the dubious distinction of leading the nation in the number of staged automobile accidents. The Insurance Information Institute (III) estimates state residents paid an extra $658 million last year in the form of higher premiums due to insurance abuse and fraud.

Florida Insurance Commissioner Kevin McCarty calls the fraud "systematic, sophisticated and pervasive."

Florida's no-fault insurance law gets much of the blame. All Florida drivers are required to carry personal injury protection, which provides up to $10,000 for medical care after an accident, regardless of who was responsible. Across the state, a network of accident referral firms and pain management clinics has sprung up to treat injuries.

Groups ranging from law enforcement organizations to the Florida Chamber of Commerce have united behind efforts to reform the law.

The state House and Senate now are discussing separate reform measures, such as requiring treatment in emergency rooms rather than clinics and implementing a medical fee schedule. McCarty expects the final legislation will contain elements of both proposals.

McCarty says the state wants to be sure injured drivers receive prompt medical care, but that no one is rewarded for fraudulent behavior.

There's a heavy emphasis to reform the law this year, because the state has only two choices: "Fix it or get rid of it," McCarty says.

(Besides Florida and Michigan, 10 other states have no-fault laws: Hawaii, Kansas, Kentucky, Massachusetts, Minnesota, New Jersey, New York, North Dakota, Pennsylvania and Utah.)

Michigan: Unlimited benefits

Like Florida, Michigan's woes hinge on its no-fault insurance laws. Its payout for no-fault claims is astronomical, coming in tops in the country at nearly $37,000 per claim, according to the III. That far outstrips New Jersey, which ranks second at $17,000, and Florida, which comes in third at about $8,500.

The key issue in Michigan is that state law requires unlimited benefits for no-fault insurance. Insurance companies pay the first $500,000 in medical costs; a state fund supported by a $145-per-driver annual fee takes over once bills hit that limit.

No other state requires limits above $50,000. Michigan also does not have fee schedules for medical procedures.

Michael Barry, a spokesperson for the III, says Michigan "is trying to find a way to cap these open-ended commitments for medical care if someone is injured."

Limiting no-fault benefits, and thereby lowering car insurance rates, might prompt more motorists to purchase insurance, advocates say. In 2009, almost 20% of drivers were uninsured, according to the III. Last year, business consultant Runzheimer International ranked Detroit as the costliest place in the country to insure a car. (Miami and Tampa made the list as well.)

A reform bill giving consumers a choice of medical coverage ranging from $500,000 to $5 million was approved by the Michigan House Insurance Committee in the fall and remains on the House floor.

Jeffrey Junkas, regional manager of state government relations with the Property Casualty Insurers Association of America, says he expects to see a "concentrated effort in the next few months" to get the changes approved. Otherwise it's likely to languish, given the legislative summer break and the fact that it is an election year.

Fraud is also "a significant issue," and draft legislation would create a Michigan State Police office to combat fraud, Junkas says. Reducing fraud is seen "as a way to lower costs for consumers."

California: Billionaire vs. watchdog

Unlike the other two states, changes to California's car insurance law are in the hands of the voters, the result of a bruising battle between a consumer watchdog group and the billionaire chairman of Mercury Insurance, George Joseph.

The 2012 Automobile Insurance Discount Act will appear on the ballot in November. If the act passes, it will result in changes to the current persistency discount, says Pete Moraga, spokesperson for the Insurance Information Network of California.

Currently, a driver who switches car insurance companies loses the persistency discount for remaining with one company for several years. If approved, the ballot initiative would allow motorists to take that discount with them if they change companies. Backers say that's a win for responsible drivers.

But the proposal would also allow insurers to raise rates for someone who hasn't had continuous coverage. While that's common in other states, California outlawed that as a rating factor in 1988. Critics such as Consumer Watchdog say insurers will use that opening to levy big surcharges on people with good driving records who didn't own a car or used public transportation. (See "If I miss one payment, does my insurance lapse?")

A similar ballot initiative failed two years ago. Most of the funding for that initiative came from Mercury Insurance. This time, the measure is being promoted by the American Agents Alliance, which represents independent insurance agents and brokers. However, a big chunk of the funding comes from Mercury's chairman.

One of the main stumbling blocks with the previous initiative was that it didn't include a provision for military personnel who had been deployed for a year or more, Moraga says.

This time, special provisions are made for military personnel, says Terry McHale, a spokesman for the Automobile Insurance Discount Act campaign. He says the act would allow "the consumer, not the insurance company, to control the discount the consumer has earned."

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