Auto insurance reforms in Michigan helping to improve affordability – IRC

Reforms made in 2019 to Michigan’s auto insurance regulations have “markedly improved” coverage affordability for drivers, according to a study by the Insurance Research Council (IRC).

Between 2017 and 2018, Michigan drivers spent 2.4% of their income on car insurance, making it the third-least affordable state for auto coverage, behind Florida and Louisiana, the IRC reported.

According to AM Best, from 2019 to 2022, the average cost of personal auto insurance in Michigan dropped 12%, while the national average increased by 5%. In 2022, auto coverage accounted for 1.9% of the median household income.

One of the key reforms in 2019 was moving away from an unlimited no-fault personal injury protection (PIP) requirement, allowing policyholders to choose from multiple benefit levels.

Other aspects of the law included addressing coverage for home care, revisiting Medicare fee schedules, and setting consistent rates for health care providers.

Michigan’s previous system of unlimited PIP coverage and a lack of a medical fee schedule led to high injury claim severity, the primary cost driver, according to the IRC. Under the new reforms, drivers can select PIP coverage of $250,000 or $500,000, with lower options available for those enrolled in Medicare or Medicaid.

Since these lower PIP options became available, over 25% of Michigan drivers have moved away from the unlimited benefits choice, as noted by the Insurance Alliance of Michigan.

Despite these changes, Michigan continues to have injury claims severity 50% higher than other states and a claims litigation rate 200% above other locations. The IRC stated that further efforts to improve affordability must address these issues.

Even with the reduced PIP benefits, Michigan’s requirements remain five times higher than any other state mandate, according to Erin McDonough, executive director of the Insurance Alliance of Michigan.

The state with the next highest PIP requirement is New York, which mandates $50,000 in coverage.

The reforms also increased the minimum bodily injury (BI) coverage requirements, defaulting residents into BI coverage five times higher than any other state. Drivers can select lower levels of coverage, but the process to do so is complicated, McDonough said.

The IRC study found that Michigan’s combined average loss cost, which includes settlements from BI and PIP claims, remains above the national average but has decreased significantly since 2019.

The average loss cost in Michigan was 26% lower in 2023 compared to 2019, whereas the national average saw a 13% increase in the same period. Some PIP claims costs may have shifted to bodily injury coverage due to legislative changes, but the overall impact has been a reduction in costs.

While the reforms have reduced household expenditure on auto insurance, Michigan drivers still pay more than policyholders in 44 other states, the IRC noted.

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