Starting this month, Michigan drivers will have new options for auto insurance as a law overhauling the state’s previous no-fault system officially goes into effect.
Previously, all drivers once had to have unlimited personal injury protection (PIP) coverage on their insurance. But on all policies issued or renewed after July 1, drivers can instead choose a different level of coverage or opt-out entirely if their health insurance covers auto-related injuries.
One immediate saving for drivers is a drop in the cost of the Michigan Catastrophic Claims Association fee. If drivers don’t opt for unlimited PIP coverage, they don’t have to pay a fee at all. Drivers who do choose unlimited will pay $100 per vehicle per year - a $120 reduction from last year.
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 could vary widely.
Backers of the law are excited to see how the changes drop rates. Critics are concerned the new options could incentivize drivers to take more risks and potentially be underinsured in the event of a catastrophic accident. And a lot of Michigan drivers are still puzzling over what the new law means for them - many still haven’t decided exactly what they plan to do.
What factors to consider when you’re buying auto insurance
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.
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.
Why it’s hard to predict individual savings
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.”
In the interview, Fox covered whether the non-driving factors insurers are now banned from using will make a dent in individual premiums, why now is a good time for drivers who have let their coverage lapse to get a new policy and more.
Why it’s hard to predict individual savings under new auto insurance law
Don’t know what to do yet? You’re not alone
For the most part, what the majority of Michigan drivers will decide when they change or renew their policies after July 1 is unknown.
A statewide survey of 1,005 Michigan drivers commissioned by the Michigan Health and Hospital Association found less than half of the respondents - 47 percent - were either very familiar or a little familiar with the law.
The statewide online survey, conducted by the market research firm Escalent last fall, found 51 percent of insured drivers surveyed would not fully opt out of PIP coverage given the choice to do so. Another 24 percent said they would fully opt out if given the choice, and 25 percent of respondents said they weren’t sure whether they would or not.
Asked what level of coverage they would choose, 43 percent of survey respondents said they would choose unlimited coverage, while 27 percent said they would opt out entirely.
A more recent online survey of 546 Michigan drivers commissioned by The Zebra, a national auto insurance comparison site, found 64 percent of respondents were aware the law was changing.
But only 20 percent of respondents said they planned to compare auto insurance rates or shop for a new policy when the law goes into effect on July 2, and 39 percent said they weren’t planning on shopping for new rates at all. Another 15 percent said they plan to compare rates before it’s time to renew their policy, and another 25 percent said they plan to do so once their policy comes up for renewal.
Coronavirus could also impact rates
Michigan drivers are also seeing a little relief from their insurance companies due to the COVID-19 pandemic.
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.
Some advocates are calling for insurers to revise their rates downward moving forward, as it’s likely the coronavirus will continue to have an impact on driving habits.
Michigan auto insurers see ‘coronavirus windfall’ as driving, crashes decrease
Michigan orders auto insurance refunds due to ‘extreme reductions in driving’
Backers of new law are excited, but many remain skeptical
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.
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 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.
Michigan’s new auto insurance law brings excitement, concern
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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