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Auto Insurance Reform - What's Not Changing, What Is Changing & What It Means To You | Michigan Car Insurance

posted Jul 18, 2018, 1:53 PM by Jason Grubbs   [ updated Jul 19, 2018, 7:23 AM ]
Michigan Auto Insurance Reform
In recent years there have been several legislative attempts, each of which ultimately failed, to reform Michigan auto insurance.

The proposed reforms always gained traction in the news as the intention of each proposal was to reduce auto insurance costs, which Michigan motorists would welcome.

Why is Michigan auto insurance so expensive?

In Michigan, by state mandate, auto insurance policies provide unlimited, lifetime medical benefits if you are injured in an auto accident.  These benefits are provided within your auto policy through the Personal Injury Protection (PIP) coverage and Michigan Catastrophic Claims Association (MCCA) assessments.

The reason there are two separate portions of a Michigan auto insurance policy relating to medical benefits is because there is a certain dollar amount for medical benefits - currently $555,000 - your insurance company is responsible to pay out of their own coffers.  If a claim exceeds that amount your insurance company would still pay the entire claim, but they would be reimbursed by the MCCA for medical costs over $555,000.

What were the proposed reforms?

The proposed reforms sought to address medical costs, a significant factor in Michigan auto insurance rates, primarily by introducing optional levels of coverage.  Rather than simply being required to be insured for unlimited, lifetime medical coverage you would have the option to choose different levels of medical coverage.

Whether you supported or opposed the proposed changes one thing is certain: If changes to optional medical coverage limits were enacted more responsibility would have shifted to consumers to understand the options and make informed decisions when selecting their desired level of coverage.

It's all too easy for insurance buyers to narrowly focus on how much their auto policy will cost and how much they would pay if their car was damaged (comprehensive & collision deductibles), overlooking considerations such as what their policy would pay if they were injured in an auto accident.

None of the reforms passed, so why does this matter?

While the proposed reforms didn't pass we are beginning to see insurance companies take steps to provide a level of choice - and potential premium savings - on the front end for medical coverage with deductible options.  Historically, deductibles for the medical portion (PIP) of Michigan auto insurance policies have ranged from $0 to $500.

One of the companies our agency represents, Safeco Insurance, recently introduced a wider array of deductible options for Personal Injury Protection (PIP) coverage ranging up to $2,500.  Since the deductible is the portion of any covered loss you are responsible to pay out-of-pocket before insurance pays obviously - all other things being equal - the premium for medical coverage with a $2,500 deductible would be less than the same coverage with a $0 deductible.

While the premium savings may be welcome, insurance buyers need to be aware of potential out-of-pocket expenses they may incur in the event of a claim, particularly if they have coordination of benefits.

What is coordination of benefits?

If you have separate health insurance that will pay first - for all household members - for injuries sustained in an auto accident you may be eligible to select coordinated PIP coverage on your Michigan auto insurance policy.  Coordinated (or excess) PIP coverage - which costs less than Primary (or full) PIP coverage simply means your health insurance would pay first any medical expenses resulting from an auto accident and your auto policy would pick up any remaining medical expenses.

It's worth noting most auto insurance policies also include a penalty deductible - in addition to any selected PIP deductible - if the medical coverage is set up incorrectly.

If you purchased an auto insurance policy with a $2,500 PIP deductible that includes a $500 penalty deductible and were injured in an auto accident only to then discover your health insurance doesn't cover injuries from an auto accident you could wind up with $3,000 in out-of-pocket medical expenses - in addition to any other out-of-pocket expenses for damages to your car.

What does this mean to me?

It's important to first confirm whether your health insurer would provide primary coverage for auto-related injuries.  You should repeat this process any time your health insurance changes - whether your employer is changing health plans, you change jobs, or you retire.

(Tip: If you don't know whether your health insurer pays first for auto-related injuries call the number on your health plan ID card and ask "Does my plan pay first in the event of a motor vehicle accident?" or "Are there any exclusions in my plan in the event of an accident?").

With this information you will know what type of medical coverage (primary or excess PIP) to include in your Michigan auto insurance policy and then can make an informed choice selecting a PIP deductible - if offered by the insurance company - considering both what you will have to pay now (premium) and what you may have to pay out-of-pocket in the event of a claim.