Michigan’s New Auto Insurance Law

March 12, 2020

We at HBL Insurance Agency are committed to helping our customers navigate Michigan’s new no-fault law and we want to help our customers understand how their insurance coverage will be affected.

The reformed Michigan no-fault law now offers drivers more choices, as well as changes to their auto insurance. While some of these changes will be phased in over time, most will go into effect on July 2, 2020.

What’s on the horizon for Michigan drivers:

Previously, it was mandatory for drivers to carry unlimited Personal Injury Protection (PIP) benefits, but starting July 2, 2020, drivers will be able to choose from different coverage options:

  • Unlimited PIP coverage
  • $500,000 limit
  • $250,000 limit
  • $50,000 limit; this is the lowest limit available, but only for drivers who are on Medicaid. (Your spouse and other relatives who live with you may be on Medicaid or have other qualified health coverage.)
  • Opt-out of PIP coverage entirely; however, you, your spouse and all relatives who live with you must have Medicare or qualified health insurance to be eligible.

Additionally, these changes will also take effect July 2, 2020:

  • Insurance companies must reduce PIP premium rates, and guarantee that they will be reduced for eight years. The rate reduction applies only to personal injury protection premiums, which is one part of your entire auto insurance costs. The average reduction takes into account both the PIP premium and Michigan Catastrophic Claims Association (MCCA) vehicle assessment fee, which cannot be reduced by insurance carriers. The reduced amount will depend on the PIP coverage that a driver selects – the higher the coverage, the lower the reduction. For example:
    • Unlimited coverage would receive on average a 10% reduction
    • $500,000 in coverage would reduce on average by 20%
    • $250,000 in coverage would reduce on average by 35%
    • $50,000 in coverage would reduce on average by 45%
    • Individuals with Medicare or qualified health insurance could opt out and receive a 100% rate reduction on certain portions of PIP, depending on their individual circumstances. MCCA deficit fee would still apply ($0 for 2020 has been announced for MCCA).
  • Non-driving factors can’t be used to set insurance rates. These factors include postal zone, credit scores, home ownership, education level and occupation.
  • Minimum liability coverage limits will be increased from $20,000 per person and $40,000 per accident to $50,000/$100,000. The policy will default to $250,000/$500,000 (or $510,000 for commercial auto policies) if you do not make a choice. Drivers must sign a selection form to choose limits lower than $250,000/$500,000.
    • The State of Michigan is recommending that you carry no less than $250,000 per person/$500,000 per accident Bodily Injury Liability limits (or $510,000 Combine Single Limit), which we are in agreement. Due to the increased likelihood of auto liability lawsuits in the state, we also urge you to protect your assets with a Personal Umbrella Liability policy.
  • Tort damages will also be recoverable for excess allowable expenses and work loss. And, the “Mini-Tort” damage cap will increase from $1,000 to $3,000 for accidents occurring after July 1, 2020.
  • Policyholders will be given the option to select their PIP coverage at each renewal. If policyholders do not make a specific selection with their new policy or when their current policy renews after July 2, 2020, their policy will be issued or renewed at the default level of Unlimited coverage.
  • The order of determining who will pay for a no-fault claim – called the “order of priority” – has changed in some cases involving:
    • Relatives who do not reside in the household of the named insured unless they are away at school. These relatives (such as your children) would need to have their own insurance policy, even if they are driving a car you own.
    • Non-relatives who reside in the household, even if they are listed drivers. They would need to have their own insurance policy.

Brief history of Michigan’s no-fault law:

Michigan’s no-fault auto insurance law has been in place for nearly 50 years. When it was passed in 1973, the no-fault system was designed to:

  • Make the claims process more straightforward for auto accident victims, especially if more than one driver contributed to an accident
  • Allow injured persons in auto accidents to collect benefits in a timely manner, so they can recover more quickly – ultimately saving time and money
  • Compensate accident victims promptly and equitably for medical costs and lost income
  • Limit the number of lawsuits that result from auto accidents, and reduce the burden on the state’s court system. (Before the law was passed, there were about 69,000 auto injury lawsuits per year. Today there are about 29,000.)

Under Michigan’s no-fault law, those who are injured in auto accidents receive unlimited lifetime medical benefits and significant wage loss benefits. Severely injured persons receive these benefits immediately, rather than having to wait for a settlement to be reached in court, like the traditional tort system in other states. And, all drivers are required to carry these coverages: personal injury protection, property protection and residual liability.

However, there have been challenges with the no-fault system, such as the rising cost of auto insurance for Michigan drivers. The Insurance Alliance of Michigan (IAM) cites that Michigan’s unlimited, lifetime medical benefits, inflation in the cost of health care and auto repair, and lawsuits are driving up the cost of auto insurance. Because of the high cost of auto insurance in Michigan, many drivers opt to not carry insurance at all, which places more stress on the system. It is because of these challenges that lawmakers recently passed reforms to the Michigan no-fault law.