The landscape of Michigan’s auto insurance market will look a lot different next month.
Come July, drivers will have to wrap their heads around major updates to the state’s auto insurance policies, which were ushered into law last year as part of a compromise between the Republican-led legislature and Gov. Gretchen Whitmer.
For the first time, drivers will have the option to choose their desired level of personal injury protection (PIP) coverage - and weigh the possible risks that come with that choice should they be involved in an accident.
The changes are expected to lower the average cost of auto insurance in the state, but that’s not a guarantee for every driver.
A person’s choice of coverage level, costs of liability coverage and a myriad of other factors insurance companies are allowed to use when setting costs mean results of the new law will vary widely.
Here are some of the factors Michigan drivers should take into consideration as they learn more about what the new law means for them.
Motorist and pedestrians navigate Fuller Ave. NE, at Leonard St., after traffic lights lost power in Grand Rapids on Wednesday, Feb. 6, 2019. (Cory Morse | MLive.com) Cory Morse | MLive.comCory Morse | MLive.com
The biggest change: You can pick your coverage level
For drivers, the main question is going to be whether they will choose to keep their current level of no-fault coverage, opt-out entirely or switch to a lower tier of coverage allowed under the new law.
People with health insurance that covers auto-related injuries and senior citizens with eligible Medicare plans will be allowed to fully opt-out of PIP coverage.
Other drivers can choose to maintain unlimited PIP coverage or choose coverage plans capping out at $500,000, $250,000 or $50,000 for Medicaid recipients.
The law requires rate reductions on the PIP portion of auto insurance premiums for the next eight years. The mandated reductions in the new law range between a 10 percent average for unlimited coverage and 100 percent for those who opt-out.
Drivers dodge potholes on Blackstone Street in Jackson on Thursday, Feb. 22, 2018. Many Jackson area roads have potholes appearing. (J. Scott Park | MLive.com) J. Scott Park J. Scott ParkJ. Scott Park
But, there are risks
Critics of the new law have pointed out capped PIP coverage won’t get Michigan motorists very far in medical costs if a catastrophic accident occurs, and many industry insiders are recommending drivers stick with unlimited no-fault coverage.
Another factor to consider: If a driver seriously hurts or kills someone in a car accident, there’s no longer a guarantee that the other person had unlimited no-fault coverage. Injured drivers without unlimited no-fault can sue for damages if their own policy doesn’t foot the bill.
The new law increases the default bodily injury coverage for motorists up to $250,000 for a person hurt or killed in an accident and up to $500,000 for an accident where more than one person is hurt or killed, and the minimum bodily injury coverage a driver can purchase under the new law is up to $50,000 for a person hurt or killed and up to $100,000 if several people are hurt or killed.
Drivers can choose to purchase additional bodily injury coverage.
A 2015 BMW i8 sits on the floor before the Michigan International Auto Show at the DeVos Place Convention Center in Grand Rapids on Monday, Jan. 25, 2015. The hybrid features scissor doors and sells for around $150,000. (Neil Blake | MLive.com) Neil Blake | nblake1@mlive.comNeil Blake | nblake1@mlive.com
Catastrophic claims fee dropped for lower levels of coverage
People who don’t opt into unlimited PIP coverage won’t have to pay the Michigan Catastrophic Claims Association vehicle assessment fee as long as the MCCA isn’t in deficit.
The MCCA, a statutorily-established nonprofit that reimburses medical costs after $580,000 for Michigan motorists with no-fault who sustain serious injuries in auto crashes, slashed its annual fee to $100 for the period beginning July 2 in anticipation of the law change.
Related: Michiganders to see $120 reduction in auto insurance fee next year
Cars drive on Beach Street between Boltwood Drive and Lakeshore Drive after it opened up to traffic in Muskegon, Michigan on Wednesday, April 15, 2020. Alison Zywicki | azywickiAlison Zywicki | azywicki
Savings projected, but results may vary
The latest numbers from the Department of Insurance and Financial Services estimates that the average statewide savings on PIP costs will exceed the requirements under the auto insurance law.
With 99.54 percent of Michigan’s personal auto insurance market accounted for, DIFS projects the statewide average minimum reductions on PIP costs will be 15.5 percent for those with unlimited coverage.
Average savings are projected to increase if people choose lower levels of PIP coverage, up to 53.3 percent for those who pick the $50,000 PIP coverage option.
Related: Michigan car insurance rates could decline by at least 16.5 percent
That said, auto insurance premiums can vary quite a lot person to person, and PIP isn’t the only contributor to auto insurance costs.
In addition to cost variables based on what PIP coverage and liability levels drivers pick, insurers are also allowed to set prices based on a number of factors like driving record, credit history and territory - meaning drivers in certain parts of the state could still see higher rates.
Michigan State Police, Monitor Twp. firefighters and McLaren EMS respond to the scene of a seven-car pileup that reduced northbound I-75 and Labor Day weekend traffic to one lane near M-13 in Bangor Township on Sept. 1, 2017.
Allowable non-driving factors reduced
The new law defines redlining as refusing or limiting insurance coverage based on location and prohibits insurers from doing it. It also prevents insurers from setting or maintaining rates based on gender, marital status, homeownership, education level, occupation, zip code or credit score.
While the bill bans the use of credit scores, there is no language banning insurers from using aspects of a person’s credit history to determine rates.
Insurers are also allowed to group auto insurance risk by territory, which critics of the legislation said would negate the ban against using zip codes as a factor.
Consumer advocates argue non-driving factors like these lead to far higher rates for those in low-income or minority communities.
Other states have also taken steps to remove certain non-driving factors from the equation, but Michigan’s blanket ban on several factors make the restrictions among the most extensive in the country.
Snow collects on a car's wheel well on Wednesday, April 4, 2018 in Muskegon, Michigan. (Mike Krebs | MLive.com) Mike Krebs | MLive.comMike Krebs | MLive.com
No penalties for previous coverage lapse
Previously, Michigan drivers who had allowed their coverage to lapse incurred a financial penalty or possible coverage limits when they signed back up for auto insurance.
That’s not the case now - when the new law takes effect, insurance companies won’t be allowed to increase a driver’s premium, charge a reinstatement fee or limit coverage for people who previously didn’t have auto insurance coverage for 18 months.
A car drives on snow and ice in Grand Rapids on Tuesday, Feb. 12, 2019. (Neil Blake | MLive.com) Neil Blake | MLive.comNeil Blake | MLive.com
More changes still on the way
July’s changes aren’t the last of the reforms agreed to last year, which will likely factor into future auto insurance costs for drivers.
Another major shift sets a fee schedule for what health providers can charge when treating auto-related injuries, and would be based on a percentage of Medicare reimbursement.
That will be implemented in July 2021 and be phased in over time, capping out at 190 to 230 percent of Medicare rates in 2023 when fully phased in.
Traffic stops on eastbound I-96, near Walker, on Tuesday, Jan. 15, 2019. Police and firefighters are responding to multiple crashes throughout West Michigan. (Cory Morse | MLive.com) Cory Morse | cmorse1@mlive.comCory Morse | cmorse1@mlive.com
Drivers will also get COVID-19 pandemic credit
Michigan drivers will also see a little relief from their insurance companies due to the COVID-19 pandemic.
The COVID-19 pandemic has changed nearly everything about public life over the last few months. While the stay-at-home order was in effect, cars were being used significantly less, meaning insurers were looking at significantly less risk.
Some auto insurers were already issuing partial refunds or credits to their customers during the pandemic, but DIFS ordered all Michigan companies to do so this month, giving insurers a June 10 deadline to submit information about the refund or waiver amount and how it was determined.
The premium waivers or refunds will be in addition to any savings resulting from the changes to auto insurance law.
Related: Michigan orders auto insurance refunds due to ‘extreme reductions in driving'
MLive file photo Neil Blake | nblake1@mlive.comNeil Blake | nblake1@mlive.com
Learn more about what the new law means for you
The new law goes into effect for any policy issued or renewed after July 1.
Drivers with questions or concerns about the changes can contact DIFS’ auto insurance hotline at 833-275-3437 or email AutoInsurance@michigan.gov.
DIFS is also hosting a number of virtual town halls for drivers with questions leading up to the law change. Two statewide town halls are scheduled for 12 p.m. Monday and 1:30 p.m. Thursday.
Drivers can also contact their car insurance agent directly for more personalized information about what rates they can expect.
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