Michigan drivers will start to see new options on their auto insurance coverage next month as a law passed last year to overhaul the state’s no-fault system begins to take effect.
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.
How much a driver will pay under the new law still depends on a myriad of factors, making it difficult to predict how much of a difference an individual policyholder will see on their next bill, said Anita Fox, director of Michigan’s Department of Insurance and Financial Services.
“Auto insurance is very personal,” Fox said in a recent interview with MLive. “It’s super hard to say what an individual is going to save.”
One of the biggest variables starting this year is what level of PIP coverage a driver chooses. Under the new law, Michigan motorists can choose to keep unlimited coverage or opt-out entirely if their health insurance covers auto-related injuries. Other drivers can choose coverage plans capping out at $500,000, $250,000 or $50,000 for Medicaid recipients.
Other factors 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.
MLive recently sat down with Fox to discuss the ins and outs of the new auto insurance law. Watch a portion of the interview below, and read on for some of the highlights.
Will eliminating some non-driving factors help lower rates for some drivers?
“I think it’s a step - we don’t know how the effect will play out,” Fox said of the new law’s language banning redlining and prohibiting 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.
Fox said the department monitored submitted proposals from insurance companies closely to ensure companies weren’t using the non-driving factors outlined in the law while keeping in mind the factors insurers are still legally allowed to use.
“I still think there will be areas where it’s more expensive, but we should see relief across the state,” Fox said.
Why now is the time to insure your vehicle if you’ve let it 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.
Fox said breaking the law by driving on Michigan roads without insurance “can lead to a lot of terrible consequences."
“This is the wrong time to be thinking about getting out of the system and the right time to be thinking about getting into it,” she said. “You protect your family and yourself in the event of an accident, you don’t violate the law, you don’t risk all the criminal penalties.”
On the state’s process for approving new auto policies
Under the new law, insurance companies were required to get final approval from DIFS before shopping their rates to customers.
Fox said more than 7,000 objections were issued as part of the back-and-forth review process, conducted with the help of outside actuaries.
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.
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.
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 and sustained reductions for Michigan drivers.”
Why the administration didn’t delay the new law’s implementation during the COVID-19 pandemic
Fox said she’s gotten questions about why the department didn’t take a pause on pushing through auto insurance changes during the COVID-19 pandemic, when most drivers spent a lot less time on the roads as the state’s stay-at-home order was in effect.
Fox said it was important to her to try and get the changes in place so drivers could begin to see relief sooner.
“We needed to get the savings to drivers,” she said. “If people are going to save money, why would we delay that?”
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.
Fox said the department didn’t want to delay companies that were already issuing coronavirus refunds or credits, but said the department will continue to keep tabs on driving habits and push for additional compensation to drivers if coronavirus trends continue.
What drivers should be doing now
Fox said it’s important for drivers to take stock of their financial situation, their driving habits and what they’d ideally like covered under their car insurance policies before their current policy renews, and also consider the value of their assets to determine an appropriate level of liability coverage.
She encouraged drivers to familiarize themselves with the choices they’ll need to make about PIP, liability, collision coverage and more before renewing a policy or starting a new one. If savings is the most important factor, Fox said, there are more options now.
“You have a lot more ability to lower your premiums by making choices,” she said. “Before, you had one choice, unlimited lifetime...that’s one way to put you in control of your savings.”
Now is also a good opportunity for drivers to shop around and compare different policies to get a baseline of what varying levels of coverage could cost for them, Fox said.
“Where you get your insurance, which company, may make a difference,” she said.
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.
Related coverage:
Gov. Whitmer signs bill overhauling Michigan auto insurance
Michiganders to see $120 reduction in auto insurance fee next year
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