Since the 1970s, all drivers in Michigan have been required to pay for unlimited medical coverage on their auto insurance bills.
“If your insurance was already higher to begin with, you should get a bigger discount.” — Anita Fox, State of Michigan
That’s about to change. New legislation passed in 2019 mandates insurance carriers cut rates if drivers opt for lower coverages, provided they have qualified health insurance to cover injuries. It also bans the use of several factors in determining a drivers’ rate — including zip codes, a practice that critics have said has led to exorbitant rates in Detroit.
But it’s a little more complicated than that. WDET’s Laura Herberg spoke with Anita Fox, the Director of the Department of Insurance and Financial Services for the State of Michigan, about the changes. She says for drivers that opt for lower personal injury protection coverage, mandated cuts mean bigger savings for those with bigger bills.
“If your insurance was already higher to begin with, you should get a bigger discount with that percentage,” Fox says. “In other words, a percentage reduction will translate to more dollars for someone who is paying more than for someone who is paying less.”
Click on the player above to hear Michigan’s Anita Fox talk about changes to auto insurance and how her department is preparing vehicle owners. Read a transcript, edited for length and clarity, below.
Laura Herberg, 101.9 WDET: This law enables drivers with qualified health insurance to decrease or opt out of medical coverage on their car insurance bills. Can you talk about how that will work?
Anita Fox, Department of Insurance and Financial Services: So what you get to do then is choose. You could choose unlimited and there will be a certain amount of savings. If you want to save more, you could go down to a $500,000 level or $250,000 level. So that’s the most it’ll pay for each person covered under your policy that is injured in an auto accident for those medical-related costs. Those are for Personal Injury Protection. That’s the part of a No Fault policy that covers you and your family’s medical and related needs if you’re in an accident. PIP is about half the premium.
So the law requires that insurance companies reduce statewide averages on PIP rates for the next eight years depending on the level of coverage drivers choose — 10% for drivers that choose unlimited, 20% for drivers that choose $500,000, 35% for drivers that choose $250,000 and 45% for drivers that choose $50,000 — but do you anticipate that any costs for consumers will go up as a result of this law?
Yes, one area for example is Bodily Injury, and that’s the part of your policy that pays if you are at-fault in an accident and injure someone else and they make a claim.
Your insurance company will step in and pay up to the limits of your policy. The minimum coverage was $20,000 per person, $40,000 per accident. Those numbers were put in place in the 1970s and had never been adjusted for inflation or change. So the new law moves the minimum up to $50,000 per person, $100,000 for everybody injured in an accident, if they file a claim against you, but it also has a default limit of $250,000 per person, $500,000 for everyone injured in an accident, if you choose that limit, or if you don’t make the choice.
But we were able to determine from the filings that we reviewed that the increase for Bodily Injury and for other non-mandatory coverages, things you don’t have to have but may want to buy to drive in Michigan, they did not negate the statewide reductions that we’re going to see on the medical portion of the policy.
Yeah, it sounds like you’re saying while some aspects of some costs related to insurance may go up, there will still be overall savings on average, right?
On average, and that’s a really important point. Because, first of all, we know that auto insurance rates are very personal, they have a lot of factors. For example, whether you’ve had tickets or accidents, what you use your car for, how far you drive, what kind of discounts you have, if you bundle your policy matter. So how an individual driver’s rates are made are a little hard to tell. Plus, on top of that, the way the law is written is in terms of statewide averages.
In addition to cost savings related to Personal Injury Protection, the new law bars insurance companies from setting rates based on several non-driving factors, including gender, marital status, homeownership, education level, occupation, credit score and zip code. But it doesn’t bar insurance companies from setting rates based on territories. Can you explain the distinction between zip codes and territories?
The law required all insurers to submit rate filings to our department. And they could not use the new rates until we approve them. So any insurance company that put in zip code as part of their filing, we rejected and said, “Nope, you can’t do that.”
We really tried to honor the intent of the law to not allow zip code to be a factor while still allowing territorial rating, if it could be justified. If you didn’t do that, the alternative to territorial rating would be a statewide rate, where you even it out. There are policy arguments for and against that, but that would mean that that in areas where the risk is lower that they would have to pay a little more and where the risk is higher, people would pay a little less to even out insurance rates by taking away the risk component.
If I’m understanding you correctly, under this new law, Detroiters still may end up paying more for auto insurance simply because they live in Detroit, is that correct?
I wouldn’t put it just that way.
First thing I’ll say, it will vary even within a territory based on your driving and your own personal history. Another thing I can tell you is, since percentage reductions are required for statewide averages based on the PIP levels, if your insurance was already higher to begin with, you should get a bigger discount with that percentage. In other words, a percentage reduction will translate to more dollars for someone who is paying more than for someone who is paying less. If you’re paying $100 and you get a 10% discount, you get $10, off if you’re paying $1,000 you get $100 off.
Where can people go if they need help understanding how to update their insurance policies based on this new law?
We have a website where you can watch videos on how to fill out your new forms and understand and get copies of what you’re going to have to fill out when you go to your agent. We have a live call center from 8:00 am to 5:00 pm Monday through Friday, 833-ASK-DIFS, where you can speak to someone, ask questions and get directed to information. If you don’t have internet access, we can mail you forms or brochures.