In May of 2019 the State of Michigan passed legislation to reform Michigan auto insurance.  Sweeping changes are being phased in over several years with the most significant changes, for consumers, coming in July of 2020.

The following is a summary of the dates changes take effect and the key reforms being implemented at each of those dates:

June 11, 2019:

The first change to Michigan No Fault law, that already took effect in June of 2019, revised the definition of who is eligible to collect Personal Injury Protection (PIP) benefits under a Michigan auto insurance policy.

PIP coverage is the portion of a Michigan auto insurance policy that responds when an individual is injured in an auto accident.  The coverage pays medical expenses and also provides limited coverage for lost wages and replacement services.

With the recent revision the definition of who is eligible to collect PIP benefits has been narrowed to individuals that are a Named Insured (owner) of an auto policy, their spouse, and any relatives residing in the same household.

Drivers living in the same household who are not designated as a named insured and who are not related to any Named Insured are not eligible to make a claim for PIP benefits under an auto policy.  In the event of an accident those individuals would be eligible to make a claim for limited PIP benefits through the Michigan Assigned Claims Plan.

What does this mean?

This change means the only way two unrelated adults living in the same household would be eligible for PIP benefits under one auto policy is if both individuals are Named Insureds (owners) of the auto policy.

A complication of this change is there are frequently situations where two unrelated adults are not married, but are living together on a long-term or permanent basis and may have, whether for convenience or budgetary reasons, combined their auto insurance.  In these situations each individual would either need their own auto policy or for each individual to be listed as a Named Insured on the “shared” policy.  It’s worth noting many insurance companies won’t permit unrelated individuals to co-own an auto policy as doing so can create a separate set of complications.

July 2, 2020:

The second phase of reforms to Michigan auto insurance will be the most significant primarily because the state requirement that all drivers purchase unlimited, lifetime medical (PIP) coverage will be eliminated.

Beginning July 2nd of 2020 individuals will be able to choose from 5 different PIP coverage options – keeping unlimited, lifetime coverage or opting for lesser coverage to reduce the cost of auto insurance.  The options will be comprised of:

  • $0 medical coverage (Individuals can opt out of PIP coverage entirely only if that individual [and all household members] have Medicare or other qualifying health insurance that covers car accident injuries)
  • $50,000 medical coverage (This will be the lowest coverage option available for Medicaid recipients)
  • $250,000 medical coverage
  • $500,000 medical coverage
  • Unlimited, lifetime medical coverage

The concept of “No Fault” insurance is for each individual to turn to their own insurance when an accident occurs, rather than having to seek recourse from an “at fault” driver.  There are exceptions when an “at fault” driver could still be sued (serious injury, death, dismemberment), however those exceptions have been rare.

As lawsuits were minimized under “No Fault” insurance the State had relatively low requirements of how much liability coverage individuals need to include with their auto policy.  Liability is the coverage that responds if you’re legally responsible for injuring someone else in an auto accident.  Through June of 2020 you can buy a Michigan auto insurance policy with as little liability coverage as $20,000 per person ($40,000 per accident).

As the reform provides options for individuals to purchase less PIP coverage it also increases the likelihood someone who is seriously injured in an auto accident may exhaust the limits of the coverage provided by their own policy and, as a consequence, be more likely to sue resulting in more liability claims.

The State of Michigan recognized the potential for more liability claims.  To address this, included with the reforms taking effect in July of 2020, the state is requiring higher limits of liability coverage on Michigan auto insurance policies.  The default coverage insurance companies will be required to offer is $250,000 per person ($500,000 per accident).  Individuals will be able to purchase, with a written request and authorization, lesser amounts of coverage – down to as little as $50,000.

Finally, additional changes taking effect in July of 2020 will also prohibit insurance companies from using certain personal information (including gender, marital status, occupation, education, zip code, credit score, and residential status) as factors in car insurance pricing.

July 2, 2021:

The final reform to Michigan auto insurance taking effect in July of 2021 will be less visible to consumers as this change will implement a fee schedule to cap how much insurers are required to pay for medical services and treatments.

Lawmakers believe instituting a fee schedule will rein in some excess costs currently realized by auto insurance companies for medical expenses compared to what is charged to Medicare for similar services and treatments.

What does it all mean to me?

As noted, the most significant changes don’t take effect until July of 2020.  At that point, with more coverage options there will be more choices available to consumers to control their insurance costs.

Of course, more coverage choices also mean there is an increased burden for consumers to be informed buyers.  There is a tradeoff whenever you purchase less coverage in that there is an increased risk of you being responsible for significant out-of-pocket expenses if your chosen coverage is exhausted by a claim.

Whenever you look over your current policy or comparatively shop take a little time to understand your coverage choices – think about what if scenarios and ask questions.  Most professional insurance agents welcome the opportunity to answer questions and provide additional information to help you understand your coverage options.  From an agency perspective an informed buyer is a better client – they have a better understanding of what they’re buying and are less likely to be confused about their coverage if a claim occurs.

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