Members of the committee,

My name is R.J. Lehmann and I
direct insurance policy for the R Street Institute, a nonprofit, nonpartisan
public policy research organization. Our mission is to engage in policy research
and outreach to promote free markets and limited, effective government in many
areas, including property and casualty insurance markets.

Our interest in Michigan’s
challenging market conditions for automobile insurance date to our prior
incarnation as the Heartland Institute’s Center on Finance, Insurance and Real Estate.
In 2011, current R Street President Eli Lehrer published a Heartland study
proposing that Michigan follow the lead of Pennsylvania in creating a
public-private auto insurance fraud task force.[1]
In January 2013, in what was at the time just the seventh policy study ever
published by R Street,[2]
I examined dislocations in the Michigan auto insurance market, issuing a set of
recommendations that included:

  1. Encouraging
    the use of health insurance as a primary payor for medical benefits;
  2. Instituting
    a medical fee schedule based on the state’s workers’ compensation fee schedule;
  3. Permitting
    consumers more choice in auto insurance plans, including the option to choose
    the level of medical benefits they wish to obtain through their auto insurance

Though much has changed in the
intervening years, Michigan continues to struggle with many of the same problems
that it always had in its auto insurance market, namely unaffordable premiums,
lack of consumer choice, cost shifting and overutilization, high levels of auto
insurance fraud, and an epidemic of uninsured drivers. Many of the recommendations
we first proposed years ago not only remain relevant, but we are pleased to see
some of their broad outlines incorporated into SB 1. While SB 1 currently lacks
many of the details necessary to fix what ails Michigan’s auto insurance
market, as a statement of legislative intent, it is a crucial step in the right

As any observer can tell
immediately, the central cause of the problem is Michigan’s sui generis rule requiring all auto
insurance policies to provide unlimited lifetime personal injury protection (PIP)
benefits. This compares with the $50,000 annual limit in New York, the next
highest in the country. As a result of Michigan’s unique PIP rules, its claims
costs run far ahead of any other state in the nation. As we documented in our
most recent Insurance Regulation Report Card, the average loss ratio of Michigan
auto insurers over the past five years was 91.3 percent, four and a half
standard deviations greater than the national mean of 66.6 percent.[3]

SB 1 would seek to address these
trends by ensuring that: consumers have the right to purchase PIP coverage in
amounts that suit their personal needs; the state’s seniors with lifetime
medical benefits may forego PIP entirely; hospitals and other providers should
provide transparent and equitable pricing of medical services; both attorneys
and insurers who negotiate in bad faith should be held accountable; and statewide
utilization reviews should be conducted to track potential cost-shifting.

The bottom line is that Michiganders
should be afforded the same level of choice in auto insurance products as those
in every other state, and special interests can no longer be allowed to pad their
bottom line at the expense of the state’s drivers and consumers. Therefore, it
is critical that the committee pass SB 1.

Eli Lehrer, “The Case for Creating a Michigan Auto Insurance Fraud Prevention
Agency,” The Heartland Institute, November 2011.

R.J. Lehmann, “Reforming Michigan’s Auto Insurance Market,” R Street Institute,
January 2013.

R.J. Lehmann, “2018 Insurance Regulation Report Card,” R Street Institute,
December 2018, p. 12.

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