As my Uncle, Rick Bloom, often says, “Money looks better in your pocket than anywhere else”, so in today’s blog I want to focus on understanding the changes the new Michigan Auto Insurance Law presents as well as explore some of the opportunities.
It has long been said that Michigan has the worst auto insurance market in the nation. We have the highest average auto insurance premiums in the nation, recently estimated at $2,611 a year which is more than double the averages in neighboring states like Indiana ($1,181), Ohio ($1,175) and Wisconsin ($951). But why?
In Michigan, those injured in auto accidents receive unlimited medical benefits for their lifetime and substantial wage loss benefits on a “no-fault” basis. Under Michigan’s no-fault system, severely injured drivers receive immediate benefits instead of the previous system of waiting for lawsuits against the at-fault party to be settled. No fault insurance meant that unlimited Personal Injury Protection (PIP) was mandatory thus resulting in high premiums.
However, last year our legislature passed a law, signed by Governor Whitmer, which seeks to enact significant changes to the current system effective July 1st. At the most basic level this new law will allow Michigan drivers to choose their level of medical coverage and shop for PIP. According to Michigan.gov. the law will “lower costs for Michigan drivers, maintain the highest coverage options in the country, and strengthen consumer protections. The legislation creates a better no-fault system for drivers”.
Here are some of the key things you as a consumer need to know about the changes that may affect you and your loved ones. I consulted with J.J Reifler, Principal-Chief Operating Officer at KIG Insurance, based in Southfield, MI who had lots of important information to share.
Personal Injury Protection (PIP) Choice:
For the first time, drivers will be able to choose a coverage level most appropriate for their needs and budget. PIP medical coverage is coverage under an auto insurance policy issued in Michigan that pays allowable expenses for medical care, recovery, rehabilitation, and some funeral expenses if policyholders are in an auto accident.
When the new law takes effect, drivers can choose to keep unlimited, lifetime medical benefits, or they could choose lower levels including $500,000, $250,000 and $50,000. Drivers with health insurance through their employer that covers auto accident-related injuries or Medicare can completely opt-out of medical coverage with their car insurance. Drivers may also be eligible to opt out of PIP for specific household members. For those who choose to opt out of PIP medical, the entire PIP medical portion of their premium will be eliminated; but, excluded members will have no PIP medical coverage under the policy.
According to Reifler, this is an important time to “review” drivers listed on your policy that may no longer be a resident of the household or non-immediate relatives or friends living in the home as they may not meet the definition of an insured and may have limited PIP coverage by law”. This may apply to adult children living elsewhere but still driving one of the family cars. In some cases, those that fall in this category may need to re-title their vehicle and obtain their own auto insurance to be covered properly.
Premium Reduction: Each insurance company will be required to reduce statewide average PIP medical premiums for eight years. Beginning after July 1, 2020, insurance companies are subject to the following overall statewide PIP medical coverage premium reductions:
- An average 10% or greater reduction per vehicle for the unlimited PIP option
- An average 20% or greater reduction per vehicle for the $500,000 PIP option
- An average 35% or greater reduction per vehicle for the $250,000 PIP option
- An average 45% or greater reduction per vehicle for the $50,000 PIP option
Drivers’ premiums will depend on the coverage they choose and factors related to their personal situation, such as driving record and claims history. When shopping for auto insurance, drivers should remember to compare the premiums, limits, and deductibles among insurance companies to ensure that the quotes are comparable.
Fee Schedule: The new law establishes a fee schedule between auto insurers and medical providers designed to control the costs that medical providers may charge auto insurers for their services. According to Reifler, “that same MRI you might get for playing baseball for $500-$1,000 was costing $5,000-$10,000 if you were in an auto accident”. This fee schedule will make PIP medical coverage premiums more affordable for policyholders but will not affect the services to which existing and future accident victims are entitled.
Michigan Catastrophic Claims Association (MCCA) Assessment: The MCAA is a fee that is charged on every vehicle and reassessed every July. In 2019 the per vehicle charge was $220 but the MCCA has already announced that as a result of the new law, it is lowering its per vehicle assessment starting July 2, 2020, saving Michigan drivers at least $120 per car. Drivers choosing less than unlimited PIP medical will not pay any assessment to the MCCA.
While we all are eager to save money during these uncertain economic times, Reifler warns that it’s important to “keep in mind that like most things in life, you get what you pay for”. For many of his customers, Reifler is recommending that they keep Unlimited PIP as it is the best coverage available. Many of the critical medical services and other treatments that one may need for a serious car accident are also not fully covered by Medicare, potentially creating exposure for consumers thinking about making a change to their coverage. Things like attendant care, vocational rehabilitation, electric wheelchairs, long term care expenses, transportation to and from medical appointments, home modifications and a list of other expenses are not covered.
Given that there are many nuances and not a one-size fits all approach, Reifler recommends that now is a good time to have a discussion with a trusted insurance advisor to review liability limits. He also recommends looking at umbrella coverage, as the new law expands what you can sue for including excess economic damages.
This is also a good opportunity to evaluate your agent and ensure that whomever you are working with is working on your behalf. At Bloom Asset Management, we don’t sell any kind of products, including insurance and we never take commissions but we are always happy to help connect you to people we trust. If you are in need of a referral, please reach out and we will be happy to assist. I can be reached at Jennifer@BloomAssetManagement.com or via phone at 248-932-5200 ext. 422
In summary, while it’s not an absolute guarantee that everyone insured will reap major savings once the new law goes into effect, at the very least you can bank on the lower MCCA annual assessment and potentially other savings depending on your individual situation.
