Michigan Residents Could See Higher Auto Insurance Rates Under No-Fault Reform

Some Detroiters could see jumps in their auto insurance rates next month when Michigan's new no-fault system takes effect, an unpleasant surprise for those who assumed that their rates and everyone else's would go down.

Overall, the new system is expected to lower insurance premiums for many drivers starting in July, when Michigan motorists are given a first-ever choice in the amount of medical coverage to buy with their auto insurance, coverage known as personal injury protection or PIP.

But early regulatory filings by some insurance companies -- plus some anecdotes from customers -- suggest that a subset of Detroit residents could see their rates go up not down.

Of those Detroit drivers, the biggest rate hikes would hit people who chose to continue buying PIP coverage instead of dropping it completely. Under the new system, drivers with Medicare or a health insurance plan that covers auto accidents are allowed to opt out entirely of PIP; others can pick lower coverage amounts between $500,000 and $50,000.

PIP can be more than half of a driver's bill in urban areas, and since 1973, all Michigan auto policies have included unlimited lifetime PIP coverage. Insurance experts say that requirement is why the state's insurance rates have been among the nation's highest.

A fuller picture for drivers' rates under the new system may not emerge until at least July 2, when regulatory filings from all auto insurance companies become public documents.

Also, cost savings for drivers are expected to grow starting July 2021, when new price controls for medical providers who treat auto accident victims using PIP benefits take effect.

Still, in recent weeks, some insurers have begun providing drivers with early price quotes for the new rates.

Not everyone is liking what they see.

The disappointed drivers include Detroit resident Megan Summers, 33, who lives on the city's east side and has a 2006 Toyota Corolla.

Summers is currently on a six-month $904 insurance policy that doesn't include collision coverage. After installment fees, her monthly payments are about $170.

She recently received a written quote from her insurance company, Progressive, for a new rate under the new system: $1,518 for six months, or $315 per month with an installment plan, according to a copy of the price quote.

Summers said she was surprised by the higher quote because she thought the insurance overhaul would lower premiums. The rate is for the same car that is parked at her same address, and Summers said she hasn't received any recent traffic violations or filed any claims.

“To get the bare minimum coverage in Detroit, I was paying $170 a month, and now they are telling me that as of July 20, with a new policy from Progressive, that it’s going to be $315 at a minimum," Summers said. "It just feels like I am being scammed.”

When contacted by the Free Press, a Progressive representative did not address specific questions about the higher rate quote but said rates overall in Michigan are decreasing.

"Due to the elimination of several rating factors like occupation, education and home ownership under the new system, the impact to individual policy premiums can vary greatly and some customers may experience an increase," the representative, Ron Davis, said in an email.

Less PIP for higher price

The rate quote Summers received would lower her PIP coverage to $250,000 from unlimited.

Yet despite reduced coverage, the price for PIP within the policy would rise to $891 over six months, or 35% higher than the $658 for unlimited benefits in her current policy, a price that included $110 for six months of Michigan's $220 per-vehicle, per-year catastrophic claims fee.

Under the new system, the catastrophic claims fee disappears for drivers in Summers' situation who choose PIP coverage below unlimited. (The fee drops to $100 a year for those who keep unlimited.)

Additionally, Progressive's rate quote shows the price for bodily injury liability coverage rising to $419 from $178. That jump reflects the coming increase to the state's minimum bodily injury coverage to $50,000 per person/$100,000 per accident from $20,000 per person/$40,000 per accident.

Summers moved to Michigan last fall from South Carolina, where she said she paid about $60 a month for car insurance. Recalling her conversation with the Progressive agent, Summers said she sought the cheapest coverage options available to her in Detroit.

“I really pressed the (agent) to offer me the lowest rate," she said. "I did say 'what are the absolute lowest rates you can offer me.' "

Summers said she is considering switching insurers once her current policy expires July 20.

After speaking with Progressive, she was told by a State Farm agent that her Blue Cross Blue Shield health insurance may qualify her for a $0 PIP auto policy and lower her overall auto premium to about $154 per month, Summers said.

Wrong side of 'average'

Rising insurance premiums are a contrast to recent statements by state insurance regulators that rates are poised to go down because insurers are complying with a new mandate to lower prices for the PIP portions of customers' premiums starting in July.

The mandated price reductions on the PIP are:

At least 10% for those keeping unlimited PIP At least 20% for those choosing $500,000 PIP At least 35% for those choosing $250,000 PIP At least 45% for those choosing $50,000 PIP (available only to Medicaid recipients)

Critics of the insurance overhaul note how those decreases are per-vehicle averages, based on insurance companies' past rates. That detail means some drivers will likely find themselves on the wrong side of the averages and see smaller decreases or even increases.

“I wasn’t in favor of what passed because it doesn’t ensure that those who are in the hardest-hit communities or ZIP codes would actually see relief," state Rep. Sherry Gay-Dagnogo, D-Detroit, said.

For instance, an insurance company could give many 10% rate cuts to drivers in parts of the state with low insurance costs while enacting a few rate increases for those in high-cost areas such as Detroit, according to Douglas Heller, a consumer advocate and insurance consultant hired by the Coalition Protecting Auto No-Fault, known as CPAN, to review insurers' rate filings.

"This whole reform -- the benefits to consumers that were promised -- were always averages. And the reality is many people aren’t average," Heller said. “What the insurance executives and lobbyists tell lawmakers in Lansing sounds great. But when we get our bills, the real story is told. And that’s the problem."

Higher prices in Detroit neighborhoods?

In a review of the handful of insurance company rate filings that were publicly available before July, Heller found that some insurers intend to raise premiums (including prices for PIP) in some parts of Detroit, even as statewide premiums decrease overall.

For example, some drivers with Auto-Owners Insurance in northwest Detroit would see prices for unlimited PIP coverage jump by about 80%, he found.

"These predominantly African American neighborhoods have household median incomes that are less than half the Michigan statewide median income, meaning that the pain of the (new system's) rate increase these residents face will be particularly acute," Heller wrote in his rate review report for CPAN, which opposed the insurance overhaul.

An Auto-Owners representative said the company's rate filing complies with state law and was approved by Michigan's insurance regulators.

Heller's report says insurers plan to rely almost entirely on cuts to Michigan's $220-per-vehicle catastrophic claims fee to achieve the mandated price reductions, which means that they aren't lowering total premiums by significant amounts. The insurance overhaul law permits that maneuver.

A Free Press review of the insurers' filings found that companies do anticipate some customers paying higher premiums under the new system, even as overall premiums across the state go down.

Farmers Insurance, one of the few insurers to make its rate filing public, said in a statement that "the vast majority" of its customers will see average savings of 2% to 2.7% under the new rates. Still, some Farmers customers could see rates go up, a result of changes in the types of discounts that drivers may be eligible for under the new system, the statement said.

Erin McDonough, director of the Insurance Alliance of Michigan, an industry group, said she could not address why some drivers could receive higher rate quotes under the new system.

She encouraged people to reach out to their insurance agent and learn about the new coverage options.

"This is a long-term reform, so we have to give it time to work," she said.

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.

This article originally appeared on Detroit Free Press: Some Detroiters could see higher car insurance rates under no-fault reform

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