Michigan sees reduction in auto insurance costs after law reform

Michigan drivers are seeing a significant reduction in auto insurance costs following changes to the state’s no-fault system in 2020, according to a paper from the Insurance Information Institute (Triple-I).

The paper, co-authored by Triple-I non-resident scholars Dr. Patricia Born of Florida State University and Dr. Robert Klein of Temple University, found that personal auto insurers are paying out fewer claims, and policyholders are paying less in premiums.

“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,” the paper read. “How much these reductions will be for any given driver will depend on the PIP (personal injury protection) option they choose among other factors.”

Prior to the enactment of its no-fault auto insurance system reform law in July 2020, Michigan was consistently identified as one of the most expensive states for personal auto insurance coverage.

This is because Michigan was the only state to offer unlimited medical benefits through the PIP portion of an auto insurance policy, the paper revealed, in addition to insurers being severely constrained in controlling the medical costs arising from PIP claims.

The cost of coverage had been so high that more than one in four drivers (26%) on Michigan’s roads were uninsured in 2019, according to an estimate by the Insurance Research Council, almost double the national average of 13%.

“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,” Born and Klein said in their analysis. “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.”

Reform law outcomes

Upon the implementation of the 2020 reform law, Michigan was able to see reduced auto insurer payouts of high PIP medical benefits, the paper said.

The reforms also allowed for instituting medical cost controls, broadening the state’s authority to regulate personal auto insurance rate filings, and the creation of a Fraud Investigation Unit within the Department of Insurance and Financial Services.

Furthermore, it has helped restrict auto insurer use of “non-driving” rating factors.

Based on estimates from comparison site Insure.com, the paper’s co-authors reported that the average Michigan policyholder paid $2,611 annually for personal auto insurance coverage in 2019 versus $2,133 in 2022, indicating an 18% decrease.

“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,” Born and Klein said. “How much these reductions will be for any given driver will depend on the PIP option they choose among other factors.”

The paper also made note of a case that’s pending before Michigan’s Supreme Court which “could invalidate the medical cost controls for persons injured before the law changes and possibly for all insureds going forward.”

“Depending on how the courts rule on the lawsuits challenging the new law, we anticipate legislative debates regarding proposed changes to the reforms that are currently in place,” Triple-I’s non-resident scholars said. “In other words, what no-fault insurance in Michigan will ultimately be is far from settled.”

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