No-fault auto insurance: Michigan drivers won't learn savings until spring or summer

Jan. 11--Michigan drivers will have to wait until late spring or even summer to find out how much money they might save under the state's revamped no-fault auto insurance system, which starts in July.

They also will likely then encounter new, higher prices for the liability portion of their insurance policy -- and learn whether that increase will cancel out some of their anticipated savings from the overhaul.

The auto insurance industry has not made any across-the-board predictions for what will happen to drivers' premiums once the new system begins. That is because of the multitude of factors that can determine an individual's insurance rate, such as geographic location, vehicle type and history of filing claims and paying everyday bills on time.

Ultimately, many drivers are expected to save money from the insurance overhaul -- especially those who choose to stop buying the potentially unlimited, lifetime no-fault medical benefits that are currently mandatory in Michigan.

Drivers who pick a limited benefits option can still fall back on their private health insurance or Medicare or Medicaid if they get into a crash. However, no-fault benefits cover things that even the best health insurance plans don't, such as extensive in-home attendant care, lost wages replacement, home and vehicle modifications and long-term custodial care in specialized rehabilitation centers.

Gov. Gretchen Whitmer signed into law the new system last year with the goal of lowering Michigan's highest-in-the-nation auto insurance rates.

Auto insurers have until April 1 to file their new proposed rate structures to the Department of Insurance and Financial Services.

Yet for most drivers, the first indication of how the new system will affect their own insurance premiums will be the renewal option paperwork they receive in the mail, generally 30 to 60 days before an existing policy expires, according to Tricia Kinley, executive director of the Insurance Alliance of Michigan, an industry group.

Must call and cancel

Generally, insurance companies will not be issuing any short-term policies to those whose policies expire in the weeks or months before the new system takes effect on July 2. That means drivers must buy a standard policy under the existing system, typically a six-month or one-year policy, even though it will extend into the new era.

However, drivers are typically not locked in to existing auto policies. So they can simply call their insurance agents on or after the July start date and choose a new policy with the new coverage choices and potentially lower prices.

"Come July 2, they can cancel their policy and get something different," Kinley said.

The new system gives drivers a first-ever option to buy less no-fault medical coverage, adds Medicare-style price controls for medical treatment and forbids insurance companies from using some nondriving factors when setting rates, such as a driver's occupation, education credentials and whether they own a home.

The overhaul has drawn criticism from some medical providers, who expect to lose money under the price controls. And some accident attorneys have questioned whether insurance companies will simply pocket the new system's savings without significantly lowering premiums.

"Most of this (law) was written by the insurance industry, and they got a lot of what they wanted," said Steven Gursten, owner and main trial attorney at Michigan Auto Law. "The savings and the breaks they got, just on the PIP side, is going to result in tens and tens of millions of dollars in savings for them."

No-fault benefits, known as PIP or personal injury protection, can represent as much as 50% or more of the price of an insurance policy in some urban areas such as Detroit. This cost is not just the $220-per-vehicle catastrophic claims fee.

In July, drivers who are on Medicare or have commercial health insurance that covers car crashes will have the option to completely opt out of those benefits, saving them money.

Liability minimums go up

But drivers will be required to start buying more coverage of a different type.

The new default option for bodily injury liability coverage will be $250,000, up from the current $20,000 minimum. This coverage pays for the serious injury or death of one person in an accident that a driver causes. (The new default will be $500,000 coverage for injuries to two or more people in an accident.)

The $20,000 minimum has been unchanged since at least the 1970s.

However, drivers can specifically request a lower minimum liability coverage amount of $50,000.

The $250,000 default option would be the highest minimum liability requirement in the nation, according to research by the Insurance Alliance of Michigan. Only two states, Alaska and Maine, mandate drivers carry $50,000 or more in liability coverage. Insurers will be required to give drivers a standardized form that explains the benefits and risks of their liability coverage options.

Kinley said the insurance industry did not seek the large increase to the default liability option. She said it was supported by other "stakeholders" in the insurance system, such as plaintiffs' attorneys.

"That is a significant change that was made," she said.

Gursten, also a member of the trade association for plaintiffs' attorneys known as the Michigan Association of Justice, said the group had been urging the Legislature for years to raise the liability minimum because it was never indexed to inflation.

A $20,000 policy in 1973 would only be worth about $3,500 in current dollars, according to a U.S. Consumer Price Index inflation calculator.

"For a couple decades, we've been saying it's inadequate," he said.

Wiped out savings?

The new law guarantees eight years of savings of between 10% and 100% off the medical (personal injury protection) portion of drivers' insurance bills, depending on the level of medical coverage selected.

But will the new liability coverage requirements wipe out that medical savings?

Christopher French, an expert in insurance law at Penn State Law, told the Free Press last year that even with the higher liability minimums, he would still expect drivers' overall auto insurance bills to go down.

"I'm sure some of the (insurance) carriers will try to grab some of it for more profits for themselves," French said. But the market forces of competition among insurers, along with state oversight, should help ensure that the insurance companies' savings are mostly passed on to drivers, he said.

An unofficial inquiry this week to a Detroit insurance agent found that increasing liability coverage from $100,000 to $250,000 would add just over $6 per month to one car's insurance bill.

Attorney Mark Bernstein, president and managing partner of the Sam Bernstein Law Firm, said Wednesday in an interview that he believes the higher liability minimums are a good thing for the public.

"It insures that accident victims can attain a meaningful recovery, and it protects that at-fault driver as well," he said.

Without adequate liability coverage, the personal assets of drivers who cause serious injury accidents could be at risk. That is because accident victims can sue drivers for damages beyond the liability coverage limits in their insurance policy, putting their bank accounts and even real estate at risk.

The new law did not change the threshold for liability lawsuits in auto accidents: death or serious impairment or disfigurement.

"I counsel people to buy as much insurance coverage as possible in the event that there's an accident, and if there's a claim that goes over their insurance limit," Bernstein said. "Oftentimes, buying just a little more insurance is relatively cheap and the piece of mind is priceless."

In practice, however, most negligence lawsuits over auto accidents get settled for the amount of the driver's liability policy, he said.

"Most people, unfortunately, don't have a lot of savings and it is quite common for a person to be able to shield their assets," he said. "So, for all intents and purposes, the insurance coverage that a defendant has is going to be the sole source of compensation for the pain and suffering part of the claim."

Bernstein said he thinks that insurance premiums overall will still go down, even as Michigan's minimum liability coverage goes up.

"I think that the insurance premiums will be lower and consumers will get more coverage -- certainly on the (liability) side," he said.

No-fault fee to drop

Drivers are already assured some savings.

The Michigan Catastrophic Claims Association announced last year that the per-vehicle fee that is added to auto insurance polices, currently $220 a year, will drop to $100 in July for those who opt to continue with unlimited no-fault coverage and completely disappear for those who pick lower coverage limits.

The fee goes toward the care of accident victims whose medical bills exceed $580,000. Only a small percentage of patients ever hit that threshold.

Nondriving factors

The new system restricts insurers from using some nondriving factors when setting rates, including ZIP Codes. However, they can still set rates by "geographic territories" that may be small or larger than ZIP Codes, and can use variations of consumers' credit histories, known as "insurance scores," although not a person's official FICO credit score.

Research has shown a connection between an individual's credit score and the likelihood that he or she may file an insurance claim.

"If the insurer can show that various components that may also be part of a credit score are relevant to risk, those components could be used as rating factors," a spokesman for the Department of Insurance and Financial Services said in a statement.

More savings in 2021

Kinley of the Insurance Alliance said drivers could get additional savings on their premiums in July 2021. That is when the new system's price controls begin for medical providers that treat auto accident patients paying with no-fault insurance.

A fee schedule will ultimately pay those providers between 190% to 250% of Medicare rates, with higher reimbursement for providers that treat large numbers of poor patients. Specialized rehab that has no Medicare equivalent will be paid at 55% of whatever that service was previously billed at.

No-fault has traditionally paid providers more money than all other types of insurance, and hospitals and rehabilitation centers are expected to lose millions in annual revenue under the price controls.

Choices to make

Starting July 2, Michigan drivers who are on Medicare or have commercial health insurance that covers car crashes (and with a per-person deductible no higher than $6,000) can choose to completely opt out of no-fault medical benefits.

Other drivers will be required to purchase some no-fault medical coverage, known as personal injury protection or PIP, with their auto insurance. They can pick from several options:

-- $250,000 in no-fault medical benefits.

-- $500,000 in no-fault medical benefits.

-- Unlimited no-fault medical benefits.

-- $50,000 in no-fault medical benefits -- but only for those on Medicaid or with health insurance that covers auto.

Contact JC Reindl:313-222-6631 or [email protected]. Follow him on Twitter@jcreindl. Read more on business and sign up for our business newsletter.

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