Jul 14, 2007

Insurance companies threaten to flee after being forced to finally pay their fair share

The one industry that paid little tax under the old Single Business Tax (SBT) is threatening to leave the state now that the new Michigan Business Tax (MBT) is finally making them pay their fair share.

William F. Woodbury, assistant vice president and associate general counsel of Lansing-based Auto-Owners Insurance Co., had a column in the Lansing State Journal last week complaining that “this tax increase makes it more expensive to do business in Michigan and it will have a direct impact on consumers, who ultimately will pay the price for the decisions made in Lansing.” Meaning: we are going to raise your premiums so we can still rake in record profits.

According to a story in the Detroit News last month, a recent study by Missouri's insurance commissioner from 1993-98 concludes that Michigan’s auto insurance companies have been piling up huge record profits and excessive surplus funds.
AAA of Michigan was used as a focal point in the study, because most of its business is done within the state. AAA's profit more than doubled to $104.2 million last year from $50.9 million in 2002. AAA's surplus -- money set aside to pay for future claims payments -- swelled by 68 percent during that period, increasing to $1.53 billion from $915 million.

Apparently doubling its profits is not enough, and Woodbury plays his trump card: threatening to go where the tax is lower and move out of Michigan.
Make no mistake; other states are lining up to handpick Michigan's most profitable companies. Their aim is clear: They want the jobs and tax revenues that go with growing companies. Many states, like our neighbor Indiana, are looking at lowering taxes on insurance companies to lure them across the border. The MBT makes it easier for them to do that.
I say good luck with that. According to the Lansing Chamber of Commerce, insurance companies have not been paying their fair tax share for years.

Insurance companies in Michigan have long enjoyed preferential tax treatment – Michigan’s tax on insurers is the fourth lowest in the country. This legislation will create a 2 percent premiums tax that will make our tax system similar to other states and bring insurance taxation in line with the national average.

Not only that, but Michigan insurance companies have been allowed to legally discriminate against Detroit drivers and other urban drivers for years in the form of Redlining. Redlining is the practice where an insurance company refuses to insure an auto or home based solely on the geographic area where the person lives or provides an inferior product based on geography or at a higher price. Sen. Martha Scott, D-Highland Park, has been fighting the practice of charging Detroit drivers as much as 365 percent more than people in other Michigan urban areas.

It’s hard to feel sorry for insurance companies. I have been paying auto insurance premiums for some 30 years and have never had a claim. That adds up to a lot of cash in their pocket. Michigan’s no-fault insurance law even gives them an unfair advantage, in my opinion. In what business do you have a law that requires you buy their product, and we have law enforcement ensuring you do buy it? If you don’t buy it you face a heavy fine. I think there should be a law that says you have to subscribe to a newspaper to insure you know what’s going on in the world, or you should buy a gym or swimming pool membership to insure you are healthy.

It’s time other businesses and companies in Michigan stopped subsidizing insurance companies, and they are now required to pay their fair share.

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