Michigan looks to kill 7-day car insurance

Jonathan Oosting
Detroit News Lansing Bureau

Lansing – Michigan is attempting to end seven-day auto insurance policies popular with cash-strapped drivers in Detroit and other urban areas, arguing the “jump start” policies undermine state law requiring continuous no-fault coverage.

The policies effectively allow motorists to skirt the law by obtaining insurance needed to renew their vehicle registration and license plate tabs each year without committing to keep coverage beyond seven days.

But supporters argue the week-long policies are a “last resort” for motorists who simply cannot afford high-cost insurance in Michigan and might otherwise resort to more drastic measures to renew their plates, including attempts to purchase fake insurance cards.

“Unfortunately, we have the highest auto insurance rates in the country, with Detroit being probably the highest on earth,” said state Sen. Joe Hune, R-Fowlerville, who chairs the Senate Insurance Committee. “So that’s the problem. The economic issue has caused people to find some creative solutions.”

The Michigan Department of Insurance and Financial Services last month informed Integon National Insurance Company of North Carolina, which underwrites here, that it was withdrawing approval for seven-day policies the state had approved in 2011.

“The Jump Start Policy as a whole is designed to ensure that coverage will expire in just seven days, after which drivers are likely to experience periods of interrupted coverage without mandatory no-fault insurance,” insurance department Senior Deputy Director Rhonda Fossitt wrote in a March 15 letter.

The department also alleges the policies violate state requirements by automatically terminating after seven days without notice or automatic renewal, saying it is “designed to cause the policy to expire rather than renew.”

Integon had demanded a hearing and requested an extension to continue selling the policies, arguing the state has no legal justification for withdrawing its prior approval. A hearing date has not yet been set, according to insurance department spokeswoman Andrea Miller. She declined further comment, citing an ongoing administrative review.

After the dispute hearing, Director Patrick McPharlin will have the option to affirm, change or withdraw the department’s decision to end the seven-day policies, according to the Michigan Insurance Code. The state told Integon the company could also seek approval for revised policies that “correct” various provisions.

Hune argues that by revoking its 2011 approval with little warning, the department is mistreating Integon and L.A. Insurance, a Royal Oak-based company that sells the seven-day policies here. He suggested the Legislature could attempt to intervene.

“This is crazy,” Hune said. “This is government at its worst, and it’s a bureaucrat literally out of control.”

Policies popular in Detroit

In a March 22 letter contesting the DIFS decision, Integon said it was surprised the state tried to stop it from selling the policies “more than five years after these forms have been approved and have been in use without any intervening changes.”

“The length of a policy term has no effect on the requirement that insureds maintain continuous coverage,” company compliance attorney Dale Gunter said in the letter, obtained by The Detroit News. “Unless insurers are required to issue indefinite and unlimited policy terms this condition as stated by the Department can never be met.”

The policies are particularly popular in cities such as Detroit, Flint and Saginaw with large numbers of low-income residents and high insurance rates, said Anthony Yousif, CEO of L.A. Insurance, which operates around 130 stores in Michigan.

The company probably processes 75 applications for seven-day policies each month in urban-area stores, Yousif said, noting agents first try to sell customers longer-term policies underwritten by Progressive and Foremost Insurance.

“It’s an affordability issue right now,” he said. If the state ends seven-day policies, “we don’t know how these consumers are going to get their vehicles tagged. We don’t know how they’re going to get to work. Not only that, how are they going to purchase vehicles from used car lots?”

Michigan requires motorists to present proof of insurance for registering or renewing a vehicle and obtaining annual license plate tabs. Ninety percent of auto insurance is verified electronically, but roughly 10 percent is done by a person submitting paper proof of insurance, according to the Secretary of State’s Office.

Between July 2015 and June 2016, motorists presented 90,701 seven-day policies. The Secretary of State conducted a random sample of those motorists 90 days later, and 16 percent of the motorists still had insurance.

“We don’t know enough about what DIFS is doing, but we generally support moving away from allowing seven-day policies,” said Fred Woodhams, a spokesman for Secretary of State Ruth Johnson. “However, we do recognize people can cancel longer-term policies after renewing.”

Nearly 45,000 motorists presented valid insurance policies at the time they renewed their plates but were later cancelled, according to Secretary of State Office data from July 2015 to June 2016, leaving those individuals without continuous coverage.

There are various ways to “scam the system,” and the seven-day insurance policy is just one of them, said Pete Kuhnmuench, executive director of the Insurance Alliance of Michigan, which has not taken a position on seven-day policies but argue they reflect a larger cost problem.

“I could cancel my insurance tomorrow, and I’d get a rebate to the day of cancellation according to the law,” Kuhnmuench said. “You can do that with a normal policy, but seven day policies are obviously much more convenient for those particular individuals.”

Michigan regularly ranks among the most expensive states for car insurance, an average likely driven up by sky-high costs in Detroit but mostly blamed on the state’s nation-leading unlimited lifetime medical benefits for car crash victims. All sides in the debate agree the state’s high insurance costs are a major motivation for consumers to purchase seven-day policies.

L.A. Insurance operates in nine states and is authorized to sell seven-day policies in each of them, said Yousif, but Michigan is the only state where it chooses to offer the option.

The state “needs to take a hard look at the cost of auto insurance,” he said. “If they fix the problem, the seven-day goes away on its own.”

No-fault reforms stalled

But fixing the problem is easier said than done. Michigan legislators have long vowed to address high insurance rates, but they’ve failed to find a consensus on a solution. Detroit Mayor Mike Duggan has urged legislative leaders this session to tackle the issue.

Insurers attribute Michigan’s high auto insurance rates to the state’s unique no-fault law, which requires unlimited lifetime medical benefits for motorists injured in auto crashes. The Michigan Catastrophic Claims Association last month announced it is increasing the annual assessment motorists pay for the unlimited injury coverage from $160 to $170, effective July 1.

“If we’re able to make the product affordable, we have less people trying to find ways to skirt their obligation under the law,” Kuhnmuench said. “But then you get into the whole debate that nobody wants to give up benefits for lower premiums, that’s kind of the cycle we’re stuck in up here in Lansing.”

Others say costs could be driven down by revisiting mandatory medical provider fees required under the no-fault law by more actively combatting insurance fraud or reducing collision coverage.

The Michigan Coalition Protecting Auto No-Fault, which opposes limiting lifetime medical coverage, this past week called on the state to investigate potential “red-lining” in Michigan, noting insurance quotes can be significantly higher for motorists in Detroit than their neighbors north of Eight Mile.

In general, CPAN argues the seven-day insurance policies “have been abused and there should probably be some tightening on how they’re used,” said spokesman Josh Hovey.

But he added, “We think it’s possible to bring some real savings to drivers and still protect the lifetime coverage that is so important in a catastrophic accident.”