MEMORANDUM

TO: FROM: DATE Members of the Michigan House of Representatives Kevin A. McKinney, CPAN Legislative Consultant June 5, 2012

SUBJECT: CPANs Concerns with House Bill 5701

HB 5701 was introduced late on Tuesday afternoon of May 29th and passed out of committee by the House Insurance Committee on Thursday, May 31th. As a result, CPAN had little time to review the proposal. Our 25 member consumer advocate and health care provider organizations had numerous questions and concerns with HB 5701, which resulted in our submission of a card at the hearing in opposition to the bill as currently written. CPAN has publically stated numerous times to policy makers and the insurance industry that it condemns fraud in the auto no-fault system and that improving anti-fraud efforts should be a goal we all share if we remain committed to the preservation of Michigans auto no-fault system. Additionally, any anti-fraud measures enacted by the legislature must balance efforts to combat fraudulent claims submitted by unscrupulous individuals and as well as stopping the wrongful denial of legitimate claims or acts of bad faith on the part of the insurance industry. HB 5701 as currently written does not achieve that necessary balance nor provide transparency to the policy holder that is ultimately paying the new $3.00 annual assessment. Our concerns are the following: 1. Lack of Transparency Under Chapter 61, Section 6104(2), the newly created Michigan Automobile Fraud and Theft Prevention Authority, which is currently the Michigan Theft Prevention Authority, is housed in the department of the Michigan State Police. The bill language would transfer this authority and its assets into the Michigan Auto Replacement Facility and strike it from being subject to the FOIA requirements, which it currently falls under. As a cornerstone priority, CPAN has worked very hard for transparency in the auto no-fault system. This is the crux of the debate with the MCCA and its assumptions of unsustainability which is why CPAN is currently in the Ingham County Circuit Court challenging the MCCAs FOIA exemption. CPAN strongly believes this new authority should be subject to FOIA, just as the current authority is today. 2. The Michigan Automobile Fraud and Theft Prevention Authority Board Composition the new board will be made up of a 15 member board, of which nine members represent the auto insurance industry. There is only one member of the general public. The current authority had a board of seven members with two being policy holders. CPAN believes that the authority should be expanded to include at least four providers (two of which should be from the rehabilitation

community) to provide valuable input and expertise to the Authority. This change would make it consistent with the current make-up of the Auto Theft Prevention Authority with regard to insurance representatives and the remaining board members. 3. Transparency of the $3.00 Assessment like the current theft prevention assessment, this new annual assessment on each insurer will likely be passed on to each policy holder. CPAN supports a requirement that insurers be transparent with this assessment and clearly report it on the policy holders declaration page. 4. Sunset Provision an annual assessment totaling $21 million for both fraud and auto theft should include a sunset provision of 3 years so that policy makers, regulators, law enforcement agencies along with the general public can determine whether this amount of the annual assessment is sufficient or excessive, and if it is providing the anticipated cost savings. Given that the bill states that the assessment is not funded by the State, there is no way for policy makers to make an effective determination or adjust the assessment without a sunset mechanism. 5. Balanced Approach to Anti Fraud Measures currently the bill defines fraud under Section 4503. This does not include wrongful denial or bad faith actions by the insurer to a provider or consumer. There is a significant concern on behalf of both providers and consumers of such actions by insurers which was demonstrated during multiple hearings in the House Insurance Committee a few years ago. If the legislature is going to approve the assessment of $3.00 per car culminating into an annual fund of $21 million to fight fraud, provisions should be included so that fraud includes not only auto fraud as defined in the bill, but also fraudulent wrongful denial of legitimate, reasonable and necessary claims by an insurance company. CPAN remains committed to joining efforts to combat the criminal element or characters that commit alleged fraudulent activities in the auto no-fault system. Raising an assessment totaling $21 million annually should be fully transparent in its purpose, and balanced in its attack on unscrupulous actors on both sides.