Michigan's new auto insurance system goes into effect in early July, but drivers cannot sit back and expect the cost savings to just appear in their insurance bills.
Drivers looking to save the most money must contact an insurance agent and change their insurance policy on or after July 2 to start taking advantage of the new coverage options.
Those who do nothing will see zero savings — at least at first — and could potentially get only minimal savings or even face higher insurance rates when their existing policy expires and automatically renews under the new system's default coverage options, which are higher than the required minimums.
"The insurance companies make more money if you stay with the higher rates," Detroit Mayor Mike Duggan said in a recent televised town hall presentation about the new system. "That’s why they’re not all over you to switch on July 2.”
Michigan law allows drivers to make changes to their no-fault auto insurance policies at any time, including switching to a different insurer.
The revamped system gives Michigan drivers a first-ever choice in the amount of medical coverage that they must buy with their auto insurance. This coverage is called personal injury protection, or PIP, and can be 50% or more of a driver's bill in urban areas such as Detroit.
Since 1973, all Michigan drivers have been required to buy potentially unlimited lifetime PIP coverage. Starting July 2, drivers can choose a different amount of PIP coverage offered at different prices.
Drivers who chose the lowest option, $0 (zero-dollar) PIP coverage, will realize the biggest savings because they will rely completely on their own health insurance to cover auto accident injuries, as most drivers do in other states.
However, they will go without PIP's unique medical benefits, which cover things that even the best health insurance plans do not, including extensive in-home attendant care, long-term injury rehabilitation and long-term custodial care in specialized centers.
Medicare WILL cover car crashes
Medicare currently doesn't cover car crash injuries for Michigan drivers who are on Medicare. That is because Medicare is considered a "payer of last resort," and because all Michigan drivers have had unlimited PIP medical benefits with their auto insurance, there has been no reason for Medicare to pay.
But the situation changes July 2 when the new system starts. Medicare will then start covering auto accident-related bills for beneficiaries who opt out of PIP, said Anita Fox, director of the Michigan Department of Insurance and Financial Services.
6 PIP options
There will be six PIP coverage options under the new system.
The PIP options available to everyone are:
- Unlimited coverage
- $500,000 limit
- $250,000 limit
The PIP options for those on Medicare or those with health insurance that covers auto accidents:
- $0 PIP for those with Medicare Part A and Part B
- $0 PIP for those with "qualified" health insurance coverage, which means it covers auto accidents and has a deductible no higher than $6,000. This option is confusingly called "$250,000 with PIP medical exclusion," yet it is the same thing as the $0 PIP offered to those with Medicare.
The PIP option only offered to those on Medicaid:
- $50,000 coverage
Extra steps to get $0 PIP
The new system requires extra steps from drivers who aren't on Medicare and wish to save money by opting out of PIP and relying on their commercial health insurance for auto accident injuries.
For one, not all insurance agents may allow drivers who aren't on Medicare to simply request $0 PIP. Agents may instead require them to first choose a $250,000 PIP coverage plan, and then the "PIP medical exclusion" option with that plan to get $0 PIP. This "$250,000 with PIP medical exclusion" plan is essentially the same as the $0 PIP plan offered to Medicare beneficiaries.
Some agents have been giving out wrong information in recent weeks, claiming that only Medicare beneficiaries can get a $0 PIP plan.
In one instance, an agent erroneously told a Free Press reporter seeking a July price quote that "you'd have to have Medicare" to get $0 PIP, and that despite the reporter having "qualified" health insurance coverage that covers auto accidents, the lowest PIP option available to them was supposedly a full $250,000 policy that would only result in minimal price savings for a Detroit address.
Duggan raised the issue of misinformed insurance agents during his recent presentation.
"In some cases, I'm hearing reports of insurance agents giving information that’s wrong," he said. "Insurance agents typically make 10 or 15% commission, so if your car insurance bill goes from $4,000 to $3,000, they lose real money.”
For those with VA health insurance coverage, the state's insurance department says it is still working with the U.S. Department of Veterans Affairs to determine whether a VA plan is considered qualified health coverage under the new system.
Even more steps
Drivers seeking $0 PIP coverage also must obtain proof of having "qualified" health insurance from their employer or health insurer, and then present that proof to an auto insurance agent.
Additionally, they must sign a form declaring that all relatives in their household either have qualified health insurance coverage, Medicare or an auto insurance policy with some PIP coverage. For instance, if a relative in the house is on Medicaid and doesn't have full PIP coverage on a vehicle, the driver who wants a $0 PIP policy cannot buy it.
“It isn’t enough for you to be covered, it’s everybody in your house, because a relative in your house might ride in your car," Duggan said.
For those in Detroit, which has Michigan's highest insurance rates, opting for a $0 PIP policy could cut a driver's total auto insurance bill by roughly 30% to 50%, according to the mayor.
"It’s going to mean a very substantial amount of money," Duggan said.
Amnesty now
Those who go a period of time without auto insurance usually have to pay much higher rates once they do buy insurance. But starting July 2, Michigan will have an 18-month "amnesty" for uninsured drivers to buy coverage without any penalty.
“Michigan had a disproportionate number of uninsured drivers, and the new auto insurance law clears many barriers to coverage that drivers were experiencing,” Fox said.
Bodily injury minimum goes up
The purchase requirements for bodily injury liability coverage will increase under the new system. This type of coverage protects drivers if they cause an accident that results in serious injuries to someone else.
The minimum amount of bodily injury coverage will be $50,000 per person injured or killed/$100,000 per accident if several people are injured or killed. The current minimum is $20,000 per person/$40,000 per accident.
However, drivers must specifically request the $50,000/$100,000 coverage. Otherwise, the new default option for bodily injury will be $250,000 per person/$500,000 per accident.
"You basically need to opt in to reduce your limits," said Matt McGrail, a senior vice president with Southfield-based Meadowbrook Insurance Agency.
Umbrella policies gain popularity
Insurance companies are seeing new interest in umbrella insurance policies among wealthier Michigan drivers who want to protect their assets against the possibility of a large claim.
Under the new system, injured people can sue a negligent driver to pay for medical bills that exceed the injured person's PIP medical limits. That will be a new situation for negligent drivers, who can currently assume that injured people have unlimited PIP medical policies and therefore won't sue for medical expenses.
"Gosh forbid you hit somebody, gone are the days where you know that person has unlimited," said Dan Schrock Jr., a senior vice president at AAA Michigan insurance. "Umbrella coverage is going to be more relevant in Michigan than ever."
Schrock said umbrella policies typically sell for $1 million and $2 million coverage increments, but can go up to $5 million.
“I’ve got a dear friend who's a neurosurgeon. He has a lot of assets and a lot of exposure. I talked to him a couple weeks ago, and he has 50/100 (bodily injury) limits," Schrock said. "I said, 'What are you doing?' You have a $1.5 million house, and if you think that if you total somebody's Mercedes that they’re not going to come after you personally after the $50,000 is gone, you're wrong."
Yet for most defendants who aren't wealthy, experiences in other states show it is relatively rare for injured plaintiffs to go after the negligent defendant's personal assets, said Mark Bernstein, president and managing partner of The Sam Bernstein Law Firm.
What typically happens is that plaintiffs settle for the negligent driver's liability coverage limits, he said, and don't go after the person's savings or house.
"It is very unusual to pursue a claim beyond the insurance coverage, except in extraordinary circumstances," Bernstein said. “And extraordinary circumstances being that the defendant has significant recoverable assets, or the defendant is some type of corporation with assets."
Credit scoring to continue
The new system forbids insurance companies from using some non-driving factors when calculating a driver's premium. Those newly outlawed factors are gender, marital status, home ownership, occupation and education credentials.
Although insurers will also be prohibited from considering a driver's numerical FICO credit score, they can still use a so-called "insurance score" that is derived from the driver's credit history and functions in similar ways.
Insurers also must stop using ZIP codes when setting rates, but they can still consider a person's address through use of geographic "territories," which can be as small as a census tract or as large as a region such as southeast Michigan.
Insurance experts say this switch to territories won't end the practice of insurance companies charging higher premiums in areas with more claims and greater risks of loss, such as Detroit.
Traditional PIP, now split
Some of the confusion about the new PIP coverage options stems from a little-known change happening to PIP benefits.
Under the current no-fault system, PIP generally includes medical benefits and in-home attendant care, as well as three years of lost wages replacement, $20 of daily "replacement services" for those who do an injured person's household chores, plus survivors' benefits and funeral expenses.
Starting July 2, those traditional PIP benefits separate.
The new PIP choice is for the medical and attendant care benefits, which comprise most of PIP's traditional expense.
But all Michigan drivers will still need to purchase traditional PIP survivors' benefits, funeral expenses and replacement services. That coverage will be mandatory.
In addition, all drivers except for Medicare beneficiaries must purchase lost wages replacement benefits. Those benefits replace about 85% of an injured person's work wages, or a maximum $5,718 per month, for up to three years.
"The new auto insurance law gives drivers new choices related to PIP medical coverage, but there are PIP benefits that motorists will still be required to purchase," said insurance department spokesperson Laura Hall.
Contact JC Reindl at 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl. Read more on business and sign up for our business newsletter.
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