Michigan car insurance changes on July 1: What you need to know

Big changes this week for Michigan drivers


Michigan drivers should be able to cut their auto insurance costs starting this week — but you may need to take action.

Michigan lawmakers approved bipartisan auto insurance reform legislation last spring aimed at cutting costs for Michigan drivers who have paid the highest insurance rates in the country.

Basically, drivers will now have a choice when it comes to coverage level. In some cases, doing nothing will save you money. But for some, you may need to take action this week.

Companies can no longer use certain non-driving factors to set rates. Drivers’ premiums will depend on the coverages they choose, and factors related to their personal situation, such as driving record and claims history.

The state has offered some resources to help sort through some of the common questions. Here’s what you need to know:

When does the law take effect?

The current law requires you to have auto insurance that includes unlimited Personal Injury Protection (PIP) medical coverage to pay for your expenses if you are injured in an auto accident. The new auto insurance law allows you to choose a level of medical coverage when your policy is issued or renewed after July 1, 2020.

If you are already receiving payments from your auto insurance policy due to injuries from an auto accident, you will continue to receive the current unlimited benefit regardless of the choice you make for the future. This is also true if you are injured in an accident between now and July 1, 2020.

Will my auto insurance bill be lower when the law goes into effect?

The new auto insurance law will allow you to choose a level of PIP medical coverage. Insurance companies are required to reduce the premium for this coverage so that there will be an average reduction per vehicle based on the level of coverage chosen.

You will also have the ability to choose different levels of Bodily Injury and Property Damage (BI/PD) coverage. This choice will also affect your premium.

Your total premium and potential savings will depend on the coverages you select. Your auto insurance agent can help you select the right coverage options for your budget.

How will I know what choices I have and what to choose?

The new law requires that auto insurance agents and auto insurance companies give you forms that describe the benefits and risks of the coverage options. You may also want to talk with an auto insurance agent to discuss your personal auto insurance needs.

Breaking down changes in PIP coverage:

For the first time, drivers will be able to choose a coverage level appropriate for their needs and budget. PIP medical coverage is coverage under an auto insurance policy issued in Michigan that pays allowable expenses for medical care, recovery, rehabilitation, and some funeral expenses if policyholders are in an auto accident.

The new available limits equal or exceed the highest benefits in the country, and Michigan is the only state where unlimited PIP medical continues to be an option.

Under certain circumstances, drivers may choose to opt out of PIP medical entirely or exclude specific household members. If drivers choose to opt out of PIP medical, the entire PIP medical portion of their premium will be eliminated but excluded members will have no PIP medical coverage under the policy.

Premium Reduction: Each insurance company will be required to reduce statewide average PIP medical premiums for eight years.

Beginning after July 1, 2020, insurance companies are subject to the following overall statewide PIP medical coverage premium reductions:

  • An average 45% or greater reduction per vehicle for the $50,000 PIP option
  • An average 35% or greater reduction per vehicle for the $250,000 PIP option
  • An average 20% or greater reduction per vehicle for the $500,000 PIP option
  • An average 10% or greater reduction per vehicle for the unlimited PIP option

But unless a motorist fills out a form, the coverage will default to $250,000/$500,000. PIP coverage will default to unlimited if the form is not returned.

Other changes in new law:

Fee Schedule: The new law establishes a fee schedule between auto insurers and medical providers designed to control the costs that medical providers may charge auto insurers for their services. This is similar to cost control provisions used by other types of insurance, such as health insurance. This fee schedule will make PIP medical coverage premiums more affordable for policyholders, but will not affect the services to which existing and future accident victims are entitled.

Michigan Catastrophic Claims Association (MCCA) Assessment: The MCCA is an association of auto insurers that reimburses member companies for PIP medical costs exceeding an identified amount, currently $580,000. The MCCA has already announced that as a direct result of the new law, it is lowering its per vehicle assessment starting July 2, 2020, which will save Michigan drivers at least $120 per car. Drivers choosing less than unlimited PIP medical will not pay any assessment to the MCCA.

The savings will be offset some, however, because the new law raised the level of required bodily injury liability insurance — which generally represents about 10% of a premium. It covers claims made against an at-fault driver for serious injuries to others.

Residual Bodily Injury (BI) Coverage: The new law protects you from claims by other injured persons by increasing the minimum BI coverage limit an insurance company is required to offer you.

Mini-Tort: The new law increases the amount of money that can be recovered in small claims court for uninsured damages.

Elimination of Certain Non-Driving Factors: The new law prohibits auto insurance companies from using sex, marital status, home ownership, credit score, educational level, occupation, and zip codes in setting a driver’s auto insurance rates.

Fraud Investigation Unit: A new unit now investigates criminal and fraudulent activity related to the insurance and financial markets and works with the Attorney General and law enforcement to prosecute these crimes. Auto insurance fraud drives up premiums for all drivers.

Prior Approval: Auto insurance rates and policies must now be filed with and approved by the Department of Insurance and Financial Services before being offered to consumers.

Fines and Penalties: The new law allows for increased fines on insurance companies, agencies, and licensed agents for certain violations of the law.