Auto insurance carriers and agents in Michigan have staked out a new line of business selling motorists extra liability coverage in case they are sued by an injured driver who opts out of unlimited medical coverage under the new no-fault law that takes effect next month.
Insurance agents are selling so-called "umbrella" policies for bodily injury claims, an added layer of protection once Michigan's law no longer requires all motorists to carry the same limitless Personal Injury Protection, starting July 2.
"We're seeing a huge increase in umbrellas," said Milene Plisko, a Livonia-based district manager for Farmers Insurance Co. "We're going to have a lot of people who are woefully underinsured, and they're going to have no recourse but to sue to recover what's not covered."
The emerging trend of motorists buying an additional layer of insurance may eat away at the savings on Personal Injury Protection they were promised by lawmakers a year ago when Gov. Gretchen Whitmer signed into law a sweeping overhaul of Michigan's 47-year-old auto insurance law.
The cornerstone of the new law seeks to rein in Michigan's highest-in-the-nation auto insurance rates by imposing a fee schedule on medical providers who care for injured drivers and then allowing motorists to choose different levels of PIP coverage.
Those coverage levels include $50,000, $250,000 and $500,000 of PIP, resulting in average mandatory rate reductions on the PIP portion of a driver's premiums of 45 percent, 35 percent and 20 percent, respectively.
Senior citizens with Medicare and drivers who have a qualified health insurance plan through their employers can choose to opt out of unlimited personal injury coverage, a 100 percent savings on just the PIP portion of their auto insurance.
Motorists who choose to continue carrying unlimited PIP are supposed to see a 10 percent reduction in that part of their premiums.
Multiple insurance agents and executives contacted by Crain's said they're advising customers who decide to stick with an unlimited PIP coverage plan to still buy additional bodily injury protection. Bodily injury insurance provides coverage for pain and suffering lawsuits from injured motorists against the at-fault driver.
"You don't have the security blanket of knowing everybody has it anymore," said Daniel Schrock, a senior vice president at the Dearborn-based Auto Club Group, Michigan's AAA insurance carrier. "We know that liability — BI — risk is going to go up."
The new law will likely increase basic Bodily Injury costs for an unknown number of motorists, agents say.
Under the old law, motorists could carry as little as $20,000 for claims involving one injured motorist and $40,000 for multiple motorists. Unlimited medical benefits meant there was little incentive to sue for coverage by that portion of the policy, and the coverage was little-used.
The new law taking effect next month requires BI coverage of $250,000/$500,000 unless a motorist signs a form acknowledging the risks and chooses to carry $50,000/$100,000 of liability coverage in the event they hurt someone in an auto accident.
Under the current law, third-party pain and suffering lawsuits were sometimes limited based on how much BI coverage the at-fault driver had. But the higher dollar limits and umbrella policies could open up a new front in auto accident lawsuits.
"If the other party has a lower PIP limit, then when they run out of that PIP (coverage), they're going to come to your Bodily Injury (coverage)," said Patrick Green, co-owner of First Independent-Descamps Insurance Agency in Sterling Heights.
The additional bodily injury umbrella policies range in value from $100,000 to $3 million of additional coverage, Plisko said.
"Most of our drivers truly don't understand they're at risk" if they hit another motorist under the new law, she said.
July 2 is the first day motorists can start insurance plans under the new law and pricing. Insurance carriers were authorized to begin marketing those plans to motorists on May 15, prompting a stream of phone calls in recent weeks, agents say.
Insurance agents say the changes to bodily injury coverage coupled with the new levels of PIP coverage have changed the way they sell plans.
There's a lot more time now required to educate and advise customers and explain the potential implications of decreasing PIP or increasing bodily injury coverages, said Scott Hulverson, a 35-year veteran AAA insurance agent and owner of the Hulverson Insurance Agency LLC in Northville.
"I described to my wife that we're going to do a year's worth of policy reviews in a month," Hulverson said. "It's a fairly daunting task we have in front of ourselves. We try to talk to every customer as frequently as we can, but we need to talk to every customer in this transition."
Hulverson is advising longtime customers to stick with unlimited PIP coverage for now.
"Let's make sure we're not making rash decisions — and that's what I'm telling my customers," he said. "Don't be slashing your coverage just to save a minimal amount,"
Green, whose brokerage sells auto insurance for carriers such as Nationwide, Progressive, Pioneer State Mutual and Frankenmuth, said he's advising customers to retain unlimited PIP coverage "and see what happens" to the marketplace and new accident claims.
"I can't recommend anyone taking a lower limit," Green said. "But if you want to, OK, here's the signoff to opt out."
"I'm keeping my unlimited PIP for a couple of years until I see how this shakes out," the veteran insurance agent added.
Insurance agents say they're already seeing potential problems with the new law that the Legislature may want to reconsider.
Plisko said the verbiage in some of the consumer forms approved by the Michigan Department of Insurance and Financial Services is confusing for motorists unfamiliar with the machinations of different types of insurance coverages.
"The next year is definitely the most treacherous," said Plisko, who trains Farmers Insurance agents in metro Detroit.
The new auto no-fault law changes the so-called "order of priority" in which an insurance carrier pays for medical treatment from injuries sustained in an accident.
Under the old law, there were six different payees that could be responsible for those costs, starting with the individual driver's insurer and moving down the line to their spouse's insurer, a relative they live with, the other vehicle owner's insurer, the operator of the other vehicle and the Michigan Assigned Claims Plan, the state's insurer of last resort.
The new law cuts that order down to four potential payees: Your policy, your spouse's policy, the insurer of a relative who lives with you or the Michigan Assigned Claims Plan, a safety-net entity that assigns uninsured claims to carriers.
Green noted there's a wrinkle in the law for families with teenage or young adult children on their multi-vehicle auto insurance plan.
If the child does not live at home — such as living at college or on their own in an apartment — the family's insurance plan won't cover their medical expenses, Green said.
They would have to fall back to the Michigan Assigned Claims Plan, which has a new $250,000 cap for personal injury expenses, he said.
"If a kid moves out with a vehicle titled to the parent, they don't have PIP coverage," Green said. "That's the most dangerous one in there and I don't know why it was done."
A parent providing their adult child auto insurance will have to buy a separate policy, losing one of their discounts for bundling multiple vehicles under one policy, Green said.
"Once those kids moved out, they're going to have to get their own policy now," he said.
Hulverson, the veteran AAA agent, said one "excessive" requirement in the new law is that motorists re-affirm in writing every six months that they're choosing not to purchase unlimited PIP coverage.
Each renewal will require motorists to sign the opt-out form the state insurance department created, Hulverson said.
"That's probably going to be determined to be a little excessive over time," he said. "We'll make it work, though. It's just going to be an interesting run."
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