Michigan No-Fault Reform

New Michigan no-fault accident insurance legislation went into effect July 2, 2020.

Here are six things to know about the new law and its impact on consumers, agents, an insurers.

Michigan’s new no-fault insurance law, passed in spring 2019, goes went into effect July 2, 2020. The impact of these changes is far reaching, from consumers and auto insurers to commercial carriers, health care insurers and lawyers.

Before we get into the specific changes, let’s take a quick look on how we got here. The beginning of no-fault insurance was in the early 1970s. It was an attempt to simplify filing claims, compensate accident victims failry and in a timely fashion, and limit the number of lawsuits from auto accidents. As a result of no-fault auto insurance, however, Michigan drivers find themselves paying some of the nation’s highest insurance premiums. This is largely due to the unlimited lifetime personal injury protection (PIP) coverage legally required on the Michigan auto policy. These high PIP premiums have also led to Michigan having one of the highest rates of uninsured motorists in the country.

The new Michigan no-fault reform claims to maximize coverage while providing relief in the form of lower rates and five PIP coverage options to policyholders.

The law went into effect for all policies renewing after July 1, 2020; any accidents incurred prior to July 1, 2020, would still be subject to the old law and have unlimited benefits. If you currently receive payments from your auto policy as a result of an injury from an auto accident, you will continue to receive unlimited benefits regardless of which coverage option you elect in the future.

Here are six things you need to know:

1. Don’t believe what the media tells you.

They rarely get it 100% correct and often get it mostly wrong. Contact your agent and read what the State says. You can go to the Michigan Department of Insurance and Financial Services (DIFS) and review the changes here: https://www.michigan.gov/difs/0,5269,7-303-12902_93639—,00.html

2. New PIP coverage options and the legally required average rate reductions (guaranteed reduction for the next eight years)

• Unlimited — Full coverage. What you had before the reform.

• $500,000 — Slight savings for less coverage

• $250,000 — Less coverage, more savings

• $50,000 — Available if the named insured is enrolled in Medicaid and their household members have another auto insurance policy, Medicaid or other health insurance that will cover auto accident injuries.

• No coverage — Required to be covered under Medicare Parts A and Any other household members must have another auto insurance policy or health insurance that will cover auto accident injuries. (100% rate reduction)

• Average premium reductions:

1. 100% PIP rate reduction for NO Pip Coverage

2. An average 45% or greater reduction per vehicle for the $50,000 PIP option

3. An average 35% or greater reduction per vehicle for the $250,000 PIP option

4. An average 20% or greater reduction per vehicle for the $500,000 PIP option

5. An average 10% or greater reduction per vehicle for the unlimited PIP option

3. The impact on Insureds

You really should talk to your insurance agent or insurance company and ask questions. You will be required to fill out a six-page form that isn’t totally user-friendly. And if you don’t make any election, your coverage defaults to unlimited.

You also need to understand your healthcare coverage/policy well enough to know what is covered in the event of an auto accident and what is not. The coverage your non-Auto healthcare policy has will determine if you are eligible to change from unlimited PIP. Check your healthcare coverage, it’s important to know that coverage of medical expenses related to an auto accident will not be as comprehensive as the medical expense coverage in your auto policy.

In other words, your auto policy will provide the most comprehensive coverage. Some healthcare plans default to your auto policy first, and some even exclude medical expenses related to injuries related to an auto accident altogether — these, among many others, are important factors to understand and weigh.

While there may be potential cost savings, there are risks associated with the lower costs. By selecting anything less than full coverage, you increase your financial risk in the event of a serious auto accident. If you were to sustain an injury and be unable to work, you could also potentially lose your current employer-provided healthcare coverage.

The bottom-line is to know what your healthcare policy covers as it can determine what savings you can get on your auto policy.

4. The impact on auto insurance companies

The new law requires agents and insurers to give policyholders a form that describes the benefits and risks of the new coverage options. Providing education and training to carriers and agents and ensuring the adequacy and accuracy of information given to customers is resulting in significant implementation costs for insurers.

In addition, insurance company may face financial uncertainty due to the implementation costs as well as an incomplete picture of which coverage options policyholders will select.

5. Michigan Catastrophic Claims Association

The mysterious and often mis-understood Michigan Catastrophic Claims Association (MCCA) was created to provide unlimited lifetime coverage for medical expenses that result from auto accidents. The MCCA currently reimburses insurance companies for expenses related to medical costs over $580,000.

Currently, the MCCA charges $220 per vehicle for the $580,000 of retention to all insurance companies. This fee is typically passed through to the policyholder, so you are paying that fee.

Beginning July 2, 2020, the rate under the new law will be reduced to $100 per vehicle through June 2021 and will only be assessed for individuals electing unlimited coverage, unless the MCCA goes into a deficit position. Therefore, the only policyholders who will continue to benefit from the MCCA are those who elect unlimited coverage.

6. More to Consider

This new rate reduction only applies to PIP coverage. Those who elect anything but the unlimited coverage may incur costs for additional liability coverage, such as bodily injury and umbrella coverage, since they can now sue and be sued for exceeding the PIP coverage amount. This is anticipated to generate more lawsuits related to auto accidents. Mandatory minimum bodily injury coverage (this is the coverage for other people) is $250,000/$500,000.

You should also be aware the only the Unlimited PIP offers Attendant Care coverage should it be necessary due to an auto claim.

Finally

The new Michigan no-fault insurance law is a bit more complicated than it looks on the surface, or how the media is portraying it. It’s important to educate yourself and your business in the six areas above to make good decisions. Always read the forms the insurance company sends completely (especially the fine print!).

Remember to keep in mind that no healthcare coverage will be as comprehensive as the coverage for medical expenses as the unlimited option on your auto policy.

As always, if you have any questions about what the new law means for you, your business, or your policyholders, give us a call (248-549-3519) or drop us an an email.