In May 2019, Michigan officials came to an agreement on an issue that had eluded lawmakers for years - overhauling Michigan’s decades-old auto insurance law in an effort to lower the state’s highest-in-the-nation insurance rates.
This week, drivers will see the ramifications of that law for the first time. On any new or renewed policy issued after July 1, Michigan drivers can pick the level of personal injury protection (PIP) coverage that they want, ranging from the previous unlimited no-fault coverage option to pulling out of PIP entirely if their health insurance covers auto injuries.
Just how that law will impact individual drivers’ rates around the state remains unclear, and what drivers ultimately choose will have a big impact on their total savings and the amount of risk they take on should they wind up in a catastrophic accident.
Supporters of the new law say most drivers should see at least some savings on their premiums this year, and stress that the industry will need time to adjust. Part of the new law that sets a fee schedule for what health providers can charge when treating auto-related injuries doesn’t begin to take effect until next summer and will take until 2023 to fully phase-in.
But on the eve of its effective date, the plan continues to draw criticism. Some lawmakers and interest groups who opposed the law as passed are calling on drivers to maintain no-fault coverage in the event of a catastrophic accident, and say additional legislative action is necessary to protect people made more vulnerable by the changes.
A new choice for drivers
One of the biggest - and perhaps most controversial - changes to Michigan’s auto insurance law is the removal of unlimited PIP coverage requirements.
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 under the new law. 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 statewide average 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.
The law does not guarantee individual savings for drivers, however. In addition to PIP coverage, other factors that determine a person’s individual rate include whether a driver wants to buy more bodily injury coverage than what’s required, the option of collision coverage or the personal information insurance companies are still allowed to use to determine rates, like driving history or the territory they live in.
Preliminary data released by the Michigan Department of Insurance and Financial Services suggests 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.
Some critics, including the Coalition to Protect Auto No-Fault, have expressed concern based on initial public filings that the reduction heavily leans on reducing the Michigan Catastrophic Claims Association fee, which is required for those who choose to maintain unlimited PIP coverage. Drivers who choose a lower coverage option will no longer have to pay the fee.
Michigan Department of Insurance and Financial Services Director Anita Fox said the department is exceeding requirements outlined in the law and will be reviewing policies closely when companies are required to refile, taking into account information about what policies drivers are choosing and whether more savings could be passed along to drivers.
“This isn’t the end for us in review,” she said. “I don’t think anybody actually knows exactly how this is going to play out, but I feel confident that we have done everything we can to make sure that there are real and sustained reductions for Michigan drivers.”
Related: Why it’s hard to predict individual savings under new auto insurance law
CPAN, the Michigan Health and Hospital Association and other critics of the final product are also worried drivers intrigued by the prospect of big savings on their auto premiums will forego unlimited PIP coverage and be unable to afford long-term care if they get badly injured in an accident.
During a CPAN press conference last week at Irvine Neuro Rehabilitation in Southfield, accident survivor Saundra Gay implored drivers to continue picking no-fault, even if it made their rates more expensive.
Gay, who sustained serious injuries in a 2000 rollover accident, said people are “going to be really in trouble” if they choose a lower tier of coverage and don’t have the money to pay for mounting costs of medical care in the event of a serious injury.
“If we didn’t have that insurance, god knows where we would be,” she said, later adding people with serious injuries would likely max out any capped coverage they purchase relatively quickly.
A ‘long-term change’
When the Republican-led legislature and Gov. Gretchen Whitmer struck a compromise on auto insurance in 2019, it got a chilly reception from most of the main lobby interests even as it passed with wide majorities in the House and Senate.
At the time, Senate Majority Leader Mike Shirkey, R-Clark Lake, said that was a key factor in breaking through the barriers that prevented law changes in the past: “This time, the interest groups were not the ones driving the reform. It was the legislature driving the reforms.”
House Speaker Lee Chatfield, R-Levering, said the new law is already benefiting Michigan drivers, citing the drop in the MCCA fee. He said getting an initial law passed “was a step that needed to be taken.”
“What we did is we paved the way to lower car insurance costs,” he said. “We blazed a trail that had never been created before.”
Erin McDonough, executive director of the Insurance Alliance of Michigan, said after having the same policies in place for nearly 50 years, the changes mean a huge transition for the industry. She stressed the importance of giving the law time to work, “so that we can really, fully understand the implications.”
“This is a long term change, and so it takes a lot - and it will take a lot - to get this all implemented," she said.
Other factors, like the medical fee schedule change and increased anti-fraud measures, will likely impact the cost of rates over time in addition to the mandated PIP reductions, she said.
“I think we’re seeing some of the benefits of that now, but...we have to give it time to work,” she said. “Let’s find out what’s working and what isn’t so that we can better understand where we need to go from here.”
Is more legislation needed?
State Rep. Kyra Bolden, D-Southfield, is among those who think there’s more that needs to happen to make the auto insurance law work better for everyone on the road.
Bolden is sponsoring legislation that would put in place additional protections for motorcyclists, who under the new law would not be able to access their own PIP auto coverage in the event of an car-motorcycle accident and would have to rely on the other driver’s insurance.
“I think there’s a wide acknowledgement that this was something that was just left out” in the original law, Bolden said. She’s hopeful lawmakers will come around to changing the idea before it becomes an issue for motorcyclists on the road.
Other proposed changes in the legislature include a bill from Rep. Tenisha Yancey, D-Harper Woods, that would allow minors to receive unlimited no-fault benefits in an accident regardless of what level of coverage their parents have. Rep. Sherry Gay-Dagnogo, D-Detroit, has called for additional restrictions on factors insurance companies can use to determine auto insurance rates.
Fox said the department isn’t currently recommending any changes to the new law ahead of its implementation, but will continue to monitor how the law plays out and any concerns brought up as drivers begin to purchase new policies.
“It was a compromise,” she said. “It may not be perfect, and there may be tweaks that need to come but for now, we’re excited to see how this creates some savings for Michigan drivers.”
So far, no major changes to the initial auto insurance law have advanced in the Michigan legislature, although lawmakers in June 2019 moved to tweak the law to prevent certain parts of it from taking effect early.
But Chatfield said he “will never say never” to looking at possible legislative changes down the line.
“This is going to be a learning process,” he said. “Our number one goal was to lower the cost of car insurance because we had the highest rates in the nation. We have done that, and we’re going to continue to look at ways we can make it even better.”
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.
Drivers can also contact their car insurance agent directly for more personalized information about what rates they can expect.
More auto insurance coverage on MLive:
Why it’s hard to predict individual savings under new auto insurance law
Michigan auto insurers see ‘coronavirus windfall’ as driving, crashes decrease
Gov. Whitmer signs bill overhauling Michigan auto insurance
Michigan orders auto insurance refunds due to ‘extreme reductions in driving’
Michigan auto insurers see ‘coronavirus windfall’ as driving, crashes decrease
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