As legislative work picks up in earnest on Michigan Gov. Rick Snyder’s plan to reform the state’s woeful no-fault auto insurance system, we wanted to call attention to a less-noticed provision of the proposal that could nonetheless have a significant impact on runaway costs in the Wolverine State.

While the most noteworthy and contentious plank in Snyder’s plan is a proposal to roll back Michigan’s unique requirement that all auto insurance policies must offer unlimited lifetime personal injury protection benefits, the governor is also proposing that Michigan finally do something about rampant fraud, particularly acute in the auto insurance market, by creating a special fraud prevention authority.

The proposal is similar to one promulgated in 2011 by R Street President Eli Lehrer, who suggested the state form a public-private partnership modeled after a similar program in Pennsylvania. The Pennsylvania Insurance Fraud Prevention Authority, which  operates without taking a penny of general revenues, is credited with saving the state’s consumers more than $113 million since its creation.

Recent polling by the Michigan Insurance Fraud Awareness Coalition found that one in six respondents in the state said they personally knew someone who had committed insurance fraud. MIFAC, which estimates that insurance fraud costs the average Michigan family between $100 and $200 in additional property/casualty premiums each year, found that 70 percent of respondents said they would support creating a specialized fraud authority.

According to a December 2012 report from the National Insurance Crime Bureau, the number of “questionable” insurance claims in Michigan rose by 49 percent from 2,973 in 2009 to 4,434 in 2011, although the 2011 figure was down from the 5,023 recorded in 2010. PIP claims were the most common loss type to spur questionable claims, followed by theft, collision, glass and bodily injury.

Michigan now ranks third on the NICB’s list of the top states for insurance fraud. In 2011, Detroit generated the most questionable claims of any city in the state, with 1,341, followed by Flint, Dearborn, Southfield and Warren.

Rep. Pete Lund, R-Shelby Township, is sponsoring legislation that tracks the broad contours of Snyder’s reform plan, including the insurance fraud authority. The bill, H.B. 4612,  is set to be the subject of an April 25 hearing of the House Insurance Committee, which Lund chairs.

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