Auto insurance changes green lit today

Jul. 2--TRAVERSE CITY -- When Justin Van Rheenen went to pay his insurance premiums this week he had a surprise -- his monthly bill was $80 cheaper.

Van Rheenen had already talked to his insurance agent and knew statewide reforms were going into effect this week, but he didn't realize how much he would save.

Now he's doing the happy dance.

"When we moved to Michigan from Iowa we thought something was wrong because our premiums shot up $200 a month," Van Rheenen said. "It's nice to see that it's dropping back down."

The reforms were signed into law in May 2019 and Michigan drivers can finally begin shopping around for lower rates.

And they should, said Erin McDonough, executive director of the Insurance Alliance of Michigan. Changes apply to policies issued or renewed after July 1, but a person does not have to wait until their policy expires to ask for lower rates, she said.

"Drivers at any time can reach out and ask for changes to their policy," McDonough said.

Reforms include several changes, though the most dramatic is that drivers no longer have to carry unlimited Personal Injury Protection coverage to pay medical expenses for injuries caused by an auto accident.

Under the new law, people can choose their level of coverage ranging from unlimited PIP coverage to opting out altogether, which can be done if anyone in their home has another auto or health insurance policy that will cover injuries from a car accident.

Policies vary, but PIP coverage on average accounts for about half of the annual bill, McDonough said. The savings is expected to be about 10 percent if a person chooses to keep unlimited coverage, to about 45 percent for those who opt out, according to information from the Michigan Department of Financial and Insurance Services.

When a policy comes up for renewal, insurance providers are required by the new law to give out information on the benefits and risks of the different options.

Mike Ball, a paramedic with the Glen Lake Fire Department, said he plans to look into his health insurance coverage to see if he needs to make any changes in his auto insurance.

It would be nice to save a little money, Ball said.

"But if you get into a catastrophic accident that can cost you even more if you don't have enough coverage," Ball said.

Insurance companies are also now required to reduce PIP rates from what they were when the bill was signed into law for those who opt to keep unlimited coverage. Those rates are frozen for eight years.

Van Rheenan, who is also saving about $50 per month because of COVID-19 reductions, normally pays $320 per month for coverage on two vehicles for himself and his wife. The vehicles are nine and 12 years old.

He's using the money he's saving to buy a computer tablet so his 7-year-old daughter can do her schoolwork.

Other reforms include not allowing insurance companies to set rates using a person's credit score, educational level, occupation, zip code, sex, marital status and whether they own a home.

Fraudulent claims also raise costs and a new unit established by the state will investigate criminal and fraudulent activity and will work with the state attorney general to prosecute the crimes. The law also increases fines for those who violate the law.

"That's a huge positive for our state," McDonough said. "It has a tremendous ability to reduce costs."

Insurance rates in Michigan are at the top of the 50-state pack for the 7th year in a row, according to information at Insure.com. Average annual premiums in Michigan are $2,878 -- or 90 percent higher than the national average of $1,517.

In Maine, which has the lowest rates, the average premium is $912 per year.

The high cost of insurance in Michigan is driven by its no-fault system, in place since 1973, that says in an accident a driver files a claim with their own insurance company, regardless of whether they caused the accident.

In 1978 the law was changed again to require unlimited lifetime coverage of medical expenses from car accidents. Michigan is the only state that guarantees this benefit. It is also what makes Michigan the most expensive place to drive.

The Michigan Catastrophic Claims Association, founded in 1978, reimburses insurance companies for their payouts of medical expenses of more than $580,000. That cost is passed on to drivers to the tune of $220 per vehicle per year.

A standard fee schedule created under the new law will now control what medical providers can charge auto insurers for injuries from an auto accident. Until now there was no cap on what hospitals could charge for injuries sustained in an auto accident, and they often charged four to five times more to treat an injury from an accident than they charged for the same injury gotten another way, McDonough said.

Only those who opt for unlimited PIP coverage with their policy will now be charged the catastrophic fee, which the MCCA has said will be reduced by at least $120 per vehicle.

The fee will automatically be lowered or drop off when a policy is renewed. Anyone who is already receiving lifetime benefits from an accident will not be affected by the new law.

State Rep. Daire Rendon, R-Lake City, recently held a phone town hall meeting at which callers could ask questions about the upcoming changes. Rendon, who sat on the committee to reduce insurance costs in Michigan, said high rates in the state have been a hot button for the last 30 years.

"Rates have gone up every year and for most drivers there seems to be no good reason for it," Rendon said.

The lowered costs will be a welcome change for Michigan drivers, many of whom drive without insurance because they can't afford it, Rendon said. That large number of uninsured drivers in the state contributes to rates going even higher.

Under the new law, there will be a grace period for those who haven't carried insurance and they will not be penalized if they buy a policy, Rendon said. The grace period runs to Jan. 1, 2022.

"Our hope is to get more drivers insured and that will reduce all our rates," she said.

McDonough said the full effect of the reforms won't be known for a few years.

"For the first time now in nearly 50 years you have choice and we don't know what people are going to be comfortable choosing," she said.

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