Bad Faith/Pro-Fraud Legislation

Legislation Could Cause Fraud, Lawsuit, Insurance Premium Spikes

Another package of bills being considered by the Michigan legislature would impose excessive restrictions on claims handling and could lead to increases in fraud and frivolous lawsuits, which could result in an estimated $554.2 million in insurance premium increases passed on to Michigan’s insured drivers and homeowners.

Taxing Consumers to Benefit Trial Lawyers

Michigan consumers are already struggling under the state’s dire economic conditions. At a time when lawmakers should be focused on making things better for consumers, this legislation essentially adds a tax to Michigan insurance policies to subsidize trial attorneys and creates an extraordinarily harsh environment for responsible businesses that are providing jobs and working hard to serve their policyholders in the state.

Lawmakers need only look to the negative consequences sustained in other states that passed similar legislation to get a sense of how badly consumers would be affected by this package of bills. Similar legislation has been defeated in other states when lawmakers have learned about the resulting increase in frivolous lawsuits, duplicative nature of the proposals and potential for negative consequences.

What Consumers and Lawmakers Need to Know

These bills could raise the cost of insurance for Michigan families. We cannot afford higher insurance rates that could be implemented as companies are besieged by additional lawsuits by trial lawyers.

• In California and Washington, studies show similar state policies encouraged trial lawyers to file frivolous law suits, forcing insurers to spend millions defending those suits and discouraging insurers from rooting out fraud and improper claims.
• An analysis by Property Casualty Insurers Association of America estimates that the bills could raise auto insurance rates in Michigan by $406.5 million and homeowner insurance rates by $147.7 million; potentially raising Michigan insurance rates by a total of $554.2 million.

Michigan already has strong laws on the books to address any potential problems with improper behavior by insurers. Let’s enforce them, not add new regulations that just drive up costs for everyone.

• Michigan insurers must pay claims within 30 days, or give a specific reason why the claim is not paid, which typically is a concern that the claim is fraudulent or not covered. If the claim is not paid in 30 days, a fine can be imposed and a 12 percent interest charge added on – important incentives for companies to move promptly.
• Failure to pay within 60 days exposes companies to investigation and penalties by the Michigan Office of Financial and Insurance Regulations, which can levy fines or even suspend a company’s license to do business in Michigan.
• Claims that these bills will bring Michigan into alignment with other states are false. No other state in the nation has a provision for a $1 million fine and the potential for serving jail time. In fact, the package of legislation would allow an injured party to sue another person’s insurance company for alleged “bad faith” in settlement practices. Today, only six states in the nation (Florida, Kentucky, Massachusetts, Montana, New Mexico and Minnesota) allow for this activity.

These bills will add new and unnecessary regulation and costs to companies doing business in Michigan, hurting the state’s business climate and job creation.

• Michigan needs every job right now. Adding new regulations drives up costs and makes it more difficult for businesses to locate in Michigan.

These bills are not needed.

• Current strong laws, competition between companies, and good business practices are why complaints per $1 million in premium are well under ½ of 1 percent for most insurers operating in the state. Almost all claims are handled promptly and to the satisfaction of customers.
• It is important to note that these bills do not cover claims against health insurers – even though 50 percent of all claims filed at the Office of Financial and Insurance Regulation in 2008 were for health insurance claims.

Who is backing this legislation?

The Michigan insurance regulators’ office has no data supporting any need for this legislation. These bills are supported by lawmakers strongly influenced by Michigan’s trial lawyers, who are looking for ways to increase the number of lawsuits they can file. It’s not fair to honest, hardworking Michigan families to pay more than their share for insurance just to line the pockets of trial lawyers across the state.