Michigan’s Auto Insurance Reform Law Reducing Costs, Paper Finds


Michigan’s personal auto insurers are paying out less in claims and drivers are paying less in premiums since changes were made to the state’s no-fault system in 2020 and policyholders are benefiting, two non-resident scholars at the Insurance Information Institute (Triple-I) have found.

“Our initial evaluation of the likely effects of the reform legislation indicates that it is significantly reducing the costs of auto insurance for many Michigan drivers. How much these reductions will be for any given driver will depend on the PIP [personal injury protection] option they choose among other factors,” said No-Fault Auto Insurance Reform in Michigan: An Initial Assessment, a paper co-authored by Patricia Born, Ph.D., of Florida State University and Robert Klein, Ph.D., of Temple University.

“Based on recent data available from the Fast Track Monitoring System, we see sharp reductions in average liability premiums and PIP average loss costs in 2022," the paper continued. "These data also indicate that the severity of PIP claims has fallen considerably as the medical cost controls have taken effect. These statistics suggest that the new law is providing considerable premium savings, at least for some Michigan drivers.”

PIP covers the treatment of injuries to the driver and passengers of the policyholder’s car in a no-fault auto insurance system. Michigan is one of 12 no-fault states in the U.S. These systems allow policyholders to file claims with their own insurer after an accident, regardless of who caused the accident. No-fault states restrict lawsuits to serious cases and promote faster claim payouts.

Before the state’s no-fault auto insurance system reform law took effect in July 2020, Michigan had consistently ranked as one of the costliest states in the U.S. for personal auto insurance coverage. This was the case largely because it was the only state to offer unlimited medical benefits through the PIP portion of an auto insurance policy, the paper said. Insurers also were severely constrained in controlling the medical costs arising from PIP claims.

Given the high cost of coverage, more than one in four drivers (26%) on Michigan’s roadways were uninsured in 2019, the Insurance Research Council (IRC) estimated, twice the national average (13%) in that year. Like Triple-I, IRC is an affiliate of The Institutes.

The 2020 reform law’s enactment allowed for:

  • Reducing auto insurer payouts of high PIP medical benefits
  • Instituting medical cost controls
  • Broadening the state’s authority to regulate personal auto insurance rate filings
  • Creating a Fraud Investigation Unit within the Department of Insurance and Financial Services
  • Restricting auto insurer use of “non-driving” rating factors (e.g., credit-based insurance scores)

The paper reported the average Michigan policyholder paid $2,611 annually for personal auto insurance coverage in 2019 and $2,133 in 2022, an 18%, Insure.com determined.

“Hence, the data lend support to the contention that Michigan’s unlimited PIP medical benefits and its lack of a medical fee schedule, uncontrolled utilization and substantial fraud and abuse were the principal factors causing Michigan’s high PIP costs,” the paper’s co-authors concluded.

The authors contend that by addressing these problems through its reform legislation, Michigan has achieved significant claim and premium cost savings for its consumers.

The paper noted a case pending before Michigan’s Supreme Court has the potential to reverse some of the auto insurer cost savings and policyholder premium reductions achieved by the 2020 reform law.

Source: Insurance Information Institute

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