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Michigan Auto Insurance Reform Savings Debunked

April 29, 2020 by Steven M. Gursten

Michigan Car Insurance Bill Signed Into New Law Savings Debunked

Now that we have a new Michigan No-Fault insurance law, most people will be disappointed that the Michigan auto insurance reform will fail to deliver any meaningful, long-term savings. Politicians – the Republicans in the Legislature, Detroit Mayor Duggan and Governor Gretchen Whitmer will claim a victory, but the people these politicians represent will be disappointed.   

Not only will these promised Michigan auto insurance reform savings be disappointing, but in eight short years, they will be gone.

The Michigan car insurance bill was rammed through the House and Senate without public hearings.  The legislation was rushed and in many crucial areas it is poorly written and vague.  It was then signed into law by Gov. Whitmer in a big ceremony on Mackinac Island.

As I told Fox 2 Detroit’s Roop Raj when he interviewed me for his story, “Auto insurance reform is on the way. But how much will it actually save drivers?,” any Michigan auto insurance reform savings that drivers happen to see under the new No-Fault law will be considerably less than what politicians and the Governor have promised them:

“The savings we are going to see is limited only to the personal injury protection, or PIP portion of the bill . . . So any savings we are going to see is limited to this 35 percent of your no-fault bill.”

When it comes to the Michigan auto insurance reform savings, math is math. Roughly sixty-five percent of your auto insurance bill will be completely unaffected by the new law. Even if you elect the very lowest PIP cap option of $50,000, that only saves you 45% of the roughly 35% of your bill that represents PIP (Personal Injury Protection No-Fault benefits).  

Whether you live in Detroit or anywhere else in Michigan and your car insurance was unaffordable for you before, it will likely still be unaffordable for you now.  

To watch my full interview with Roop, check out the video below.

Michigan auto insurance reform savings: What drivers can expect

Gov. Whitmer says Michigan auto insurance reform savings will be greater than expected under the new No-Fault law. However, insurance premiums have skyrocketed since June 11, 2019 when the new law was passed. There still are no guaranteed savings for drivers.

In an April 28, 2020 announcement, Gov. Whitmer stated that “Michigan’s auto insurer rate filings approved by DIFS will provide savings to Michigan’s drivers, that not only equal, but exceed, the law’s required reductions of average statewide per vehicle premiums.”

Don’t get me wrong. It’s great news that the Michigan auto insurance reform provides savings under the new No-Fault law that may be greater than what the politicians promised. Michigan drivers desperately need to pay less for No-Fault auto insurance.

However, the announcement on these Michigan auto insurance reform savings should be considered in light of the following facts:

  • Insurance companies are just giving back some of the money that these same insurance companies have taken from drivers by raising rates over the last year. That makes these new Michigan auto insurance reform savings more sleight of hand than actual savings for drivers, and arguably since these savings are coming from steep rate hikes since the new auto No-Fault law was passed, it is also the least they could do. Since before the new No-Fault law was enacted in June 2019, auto insurance companies have been increasing their rates in order to have a bigger war chest of profits to be able to then turn around and use to cushion the blow of these legally mandated Michigan auto insurance reform savings.
  • That means that with the new Michigan auto insurance reform savings we’re all in the same position we were in before – that as an individual Michigan driver, we are not personally guaranteed any actual savings on our own No-Fault auto insurance. In fact, our rates could actually go up from here – as they have for most people since the new law was enacted. The new No-Fault law states that it “does not prohibit an increase for any individual insurance policy premium” if the insurance company can justify the increase based on the rating factors approved under the new No-Fault law. (MCL 500.2111f(9))
  • The mandated Michigan auto insurance reform savings under the new No-Fault law are really only the “law’s required reductions of average statewide per vehicle premiums,” as described by Gov. Whitmer. (See also (MCL 500.2111f(2))
  • Any Michigan auto insurance reform savings that drivers do see with the new No-Fault law will be limited to only the No-Fault PIP (personal injury protection) portion of their auto insurance, which is approximately 35%-40% of a person’s total auto insurance costs. So, if a Detroit driver is paying $6,000 for car insurance saves 42% on his or her No-Fault PIP coverage, the driver will still be paying approximately $5,100 for car insurance. In other words, if people couldn’t afford car insurance before, they will not still not be able to afford it now.

Here is why you will be disappointed by your Michigan auto insurance reform savings under the new No-Fault law

Savings are only on the No-Fault PIP portion of your auto insurance bill: The Michigan auto insurance reform savings we are being promised will only apply to the No-Fault PIP portion of your auto insurance bill. Consider this: No-Fault PIP represents only about 35% of your auto insurance bill (this varies within a couple percentage points depending on where you live and what kind of car you drive).

You don’t save 45% of your entire bill if you choose the lowest PIP cap coverage level of $50,000.  You just save 45% on about 35% of your bill that No-Fault PIP represents. You just traded away unlimited lifetime medical care for any reasonable medical treatment you may need both now and in the future for a $50,000 cap and in exchange for that trade you are only saving 45% of the 35% of the PIP portion of your bill.

Adding insult to injury, Michiganders by my calculations now will still be paying the third highest auto insurance premium in the country.

Your Michigan auto insurance reform savings only last for 8 years: After eight years, the Michigan auto insurance reform savings requirement will expire. We all know what auto insurance companies will do when that happens. Expecting these Michigan auto insurance reform savings to continue is like Charlie Brown expecting Lucy is finally hold the football for him to kick it. This time is NOT different.  We’ve seen these assurances and promises from the insurance industry over and over again. Never once has the insurance industry followed through on the assurances and promises they have made in the past that they would lower our car insurance rates once they got what they wanted.  Lucy never lets Charlie Brown kick the football. The insurance industry never keeps its promise once it gets what it wants. This includes after the sweeping and draconian tort reform that was enacted in 1995 and it also includes the entire Kreiner v. Fischer era in Michigan that threw thousands of deserving and seriously injured car accident victims in Michigan out of court.

Your Michigan auto insurance reform savings will be peanuts compared to what the insurance companies will get: I used the example above of a person choosing the lowest No-Fault PIP cap of $50,000 for medical coverage to show how paltry the 45% savings will be as it only reduces your total bill by approximately 15%.

Not so for your insurance company. They just went from being liable for $580,000 in coverage (before additional amounts would be transferred to the MCCA fund) to now being liable for only $50,000.

That’s a savings of 91%. Add to that the millions and millions of dollars that auto insurance companies will save as a result of the new law’s Medicare-based No-Fault medical-provider fee schedule and slashing family-provided attendant care for catastrophically injured auto accident victims to only 56 hours a week, and we’re talking about tens of millions of dollars in savings for the auto insurers.

Lots of other goodies and Michigan auto insurance reform savings breaks and boondoggles for the insurance companies: The new No-Fault law gives auto insurers an “out” to avoid having to reduce their premiums if they can demonstrate to the Insurance Commissioner that the new law’s mandatory rate reductions would unconstitutionally deprive them of their property without due process and/or the rate reductions would leave them at risk of having too little “capital.” That last part is something to pay attention to.  We’ve all lived through incredibly reckless insurance company speculation (Remember AIG almost bringing down the entire financial system in 2008?).

The perverse incentives for insurance companies, which these days really act more as financial investment companies, is this: Invest the money you collect in premiums in places like the stock market and make big bets. Then, if you lose because the market crashes, or because you are AIG and you invest in something like credit default swaps and lose all your money, then under this new car insurance law you can go to the Michigan Insurance Commissioner and show you now have too little capital to keep the “guaranteed” savings you promised with the Michigan auto insurance reform.  You then get to increase your premiums and get your money back from your insureds while avoiding reducing car insurance premiums for your customers as the auto law now requires.

If you are an insurance company, you get to play with house money.

Your Michigan auto insurance reform savings will be eaten up by increased costs on your employer-provided health insurance:  The new No-Fault bill now caps exposure of the insurance companies for auto accidents at the PIP level that has been selected. That means we can expect a significant increase in costs for employers and businesses that will be passed on to their employees as health care costs increase to absorb the new millions of dollars in medical care and treatment that used to be paid by auto No-Fault but that will now be paid by health insurance companies.

Your Michigan auto insurance reform savings will be eaten up by increases in your taxes as medical costs are now shifted to Medicaid to pay: The Senate Fiscal Agency and the House Fiscal Agency have estimated that the new No-Fault law will increase state Medicaid costs to between $70-$72 million annually within 10 years. That means the caps on No-Fault PIP medical benefits contained in the new law will effectively create a new Medicaid tax on consumers because it allows insurance companies to shift millions of dollars in medical care and treatment they would have been responsible for paying onto the public-taxpayer-funded Medicaid system.

Your Michigan auto insurance reform savings could be better if the MCCA were more transparent: Even if you forfeit your catastrophic injury coverage by choosing one of the dollar-amount caps on No-Fault PIP medical benefits available under the new law, it’s likely that you will still have to pay at least a little bit of the MCCA annual assessment in the event that the MCCA is running a deficit. But that may not have been the case if the MCCA were transparent about its rate-setting process and its rate-making assumptions. We’ve never had transparency on these issues (we’ve just noticed repeatedly how MCCA assessment increases always seem to “coincidentally” be approved by the MCCA’s insurance-company-dominated Board of Directors whenever No-Fault reform was in the news – as it was this year when another significant rate increase was approved). We have no idea how many of the billions of dollars currently within the MCCA have been set-aside for future car accident victims. Similarly, we have no idea where those billions of dollars will go as drivers choose to forgo catastrophic injury coverage and, thus, do not qualify for No-Fault PIP medical benefits through the MCCA. It seems like now would be a perfect time for that audit of the MCCA that Gov. Whitmer ordered in March.

Speaking of the MCCA, the lowering of your MCCA assessment should not be counted as “savings” from your own auto insurance company: Crazy as it may sound, a last minute amendment to the new No-Fault law that was rammed through the Republican Legislature will now allow your car insurance company to count your own reduction in your MCCA assessment as part of the Michigan auto insurance reform savings that they are required to provide under the new law.  

This was not in the original bill. It was literally a last-minute amendment that was passed by the Republican Legislature. The only explanation is that these politicians are more concerned with helping the insurance companies than they are with reducing the high costs of auto insurance premiums for their constituents. Changing the wording of the bill language just before the stroke of midnight to allow insurance companies to count the reduction in MCCA assessment fees as part of their own promised savings to drivers is corrupt politics at its dirtiest.  (Note: Even drivers who choose the lowest No-Fault PIP medical benefits coverage or opt-out altogether will still have to pay a reduced MCCA assessment in the years when the MCCA is running a deficit.)

And speaking of the MCCA fee shenanigans, there is very alarming language in the new auto law that suggests that potentially billions of dollars currently in the MCCA – from your yearly MCCA assessments that you pay as a driver – will not be returned to you but will go to the car insurance companies.  This appears to be a giant kickback to the insurance industry that could now reap a windfall of billions of dollars.

Insurance Companies will continue to use horrible cut-off doctors to find nothing wrong with auto accident victims

Lawmakers had a chance to protect people from these so-called independent medical examiners that insurance companies hire to do one-time evaluations of people. They could have included mandatory protections such as a right to record and videotape these examinations to protect people who are forced to see these doctors.

But they didn’t.

Most of the protections that auto accident lawyers like me were seeking were taken completely out. Those that did remain in the bill are significantly watered down. When an insurance company doctor is hand-picked and hired by insurance companies, the credibility of the exam itself is on the line. Auto accident lawyers like me challenge the integrity of these 1-time exams by these same insurance company doctors all the time. We say there is nothing truly independent about them, and these same doctors who get hired all the time just say whatever the claims adjuster wants them to say.

By not allowing auto accident victims the right to record these exams, the exam process and results are not transparent. By denying a transparent process, we deny juries and judges the right to see for themselves if the exam is truthful and fair. Now we just have to trust these doctors to tell the truth and ignore that they make hundreds of thousands of dollars every year finding nothing wrong with people.

Think I’m overstating things and these doctors always tell the truth about their findings?  Click here to see a real-life, horrific example of what one doctor did to one of my actual clients.

Author’s note: I’ve decided today not to write about my biggest disappointment of all with this new car insurance law. I have not written about what will now happen to the tens of thousands of people who require medical care or attendant care for catastrophic automobile accident injuries. I have not written about what will now happen to those tens of thousands of people who will suffer horrific car crash injuries but who will now no longer be able to receive the medical care they desperately need.  I have not written about how thousands of people will now lose their life savings, be forced to declare personal bankruptcy and be forced to turn to Medicaid for now vastly limited medical care and services. Readers of this auto law blog know that I have expressed my feelings on this many times before. For a summary of what this new law will do to our most vulnerable and to doctors and hospitals that care for them, I encourage you to read Sunday’s Detroit Free Press article by Mitch Albom entitled “The ugly truth of Michigan’s No-Fault reform bill.”  As he always does, Mitch Albom says it better than I ever could.  


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