When is my MI auto insurance bill going down?
On May 30th, 2019 Governor Whitmer signed into law Senate Bill 1 designed to reform insurance in MI. The media and other outlets have been touting the bill for weeks and informing consumers of how much this is going to save them from the highest auto insurance rates in the country. Sadly, they have neglected to give consumers an accurate picture of what the bill actually does for individuals insurance bill, and more specifically WHEN they might see some relief. The bill does include some features like a provision that will allow the consumer to choose the level of medical coverage they desire or need which will inevitably reduce the cost of PIP coverage, however neglects to address where these lost revenues for the insurance companies may or may not find their way into other areas of your bill for example. So, the remainder of this post includes 5 key highlights everyone needs to know that might help them understand these details, as well as some of my opinions on the changes.
1. THE AUTO INSURANCE REFORM DOESN'T TAKE EFFECT UNTIL JULY 1, 2020
That's right, you won't see anything happen, at least substantially change, for over a year. That point seems to be buried when the media or even Gov. Whitmer talks about how exciting this is for everyone.
2. YOU ARE GOING TO SEE INCREASED RATES BEFORE YOU SEE ANY DECREASES
Again, another point buried in the flurry of excitement from this so called monumental bi-partisan bill. Your favorite group of lawmakers that have defied the odds and passed this bill forgot to mention that the Michigan Catastrophic Claims fee we all pay per vehicle is GOING UP July 1, 2019 by $28 per vehicle annually bringing that fee from $192 to a whopping $220 per vehicle! Keep in mind, that fee was just increased from $170 to $192 July 1, 2018. So before you get too excited, know that you WILL be paying more before you will pay less regardless of who your carrier is.
3. MICHIGAN HAS THE HIGHEST RATES IN THE COUNTRY, NOW WE HAVE THE MOST RESTRICTIVE RATING CRITERIA IN THE COUNTRY
The new bill no longer allows insurance carriers to rate people based on zip code, gender, credit (but still allows for "credit based insurance scoring"), education level and a couple of other items. Sounds great! So I can't have a higher rate because I don't have a degree or own a home. Good news. However, once again the question that didn't get addressed is how then will we rate people to divide them into risk categories? And how will this impact my current rate if I'm considered a "preferred" customer because of one of the aforementioned factors? Will my rate increase then since I'm no longer in my designated risk pool and now in a more broad category? I don't know how these ultra strict rating factors will affect your rate, however I do know that we went from one extreme to another, and historically we have seen how those types of policies have benefited MI residents especially when it comes to auto insurance.
Robert Passmore, assistant vice president-personal lines policy at the American Property Casualty Insurance Association, said the bill’s language would set up “one of the more restrictive regimes” in the country for insurers to follow when determining risk.
He also said insurers use the factors as a means of grouping together high and low-risk drivers, and said limiting the tools insurers can use to differentiate those risks “squeezes everybody more into the middle” instead of lowering rates. So, a scenario you might need to be prepared for is that your driving record and claims history combined with your credit history (i.e. credit based insurance score) will affect rates more substantially moving forward.
4. YOU WILL GET TO CHOOSE THE LEVEL OF MEDICAL COVERAGE YOU NEED OR WANT
The "unlimited medical" coverage we have all heard about is one of the main factors to MI having the highest auto insurance rates in the country. It is also what necessitated the creation of the MCCA and its associated annual fees mentioned above. The current legislation states that in the event of medical expenses from an auto accident costs up to $555,000 will be covered by the insurance company and costs exceeding that amount covered by the MCCA (not a government agency, it's a non-profit unincorporated association by the way). Because of this policy, medical providers reportedly will charge more for care associated with auto accidents then knowing that it has to be covered regardless of how much the care adds up to. Not a good system, never has been in my opinion. With the new bill you will get to decide if you wish to keep unlimited medical coverage, or opt for a lesser amount (below $555,000) thereby resulting in some mandated rate decreases from the bill as well as no longer having to pay the entire MCCA fee. (everyone will still have to pay $43 per vehicle per year even if they don't have unlimited medical so the corrupt MCCA can still pocket billions per year of your money. *That is opinion not fact*) Those on Medicare will be able to opt for the lowest PIP coverage, and anyone lucky enough to have health insurance that covers auto accidents would be able to opt out of the medical coverage entirely. There will also be a "provider friendly" and "fluctuating" fee schedule for medical providers to follow when charging insurance companies for care. (provider friendly, really? you mean still exorbitantly high rates just not as high?) The stated decreases range from ten percent to forty five percent depending on the level of coverage.
This is the meat and potatoes of what would be the rate decrease, but once again there are some key things to consider when hearing these percentages and what they may or may not do for you, so stick with me! The first thing is the percentages. Some insight from the insurance world, when you hear a "10%" discount and you are paying $2400 per year, that doesn't always mean you will save $240 on your bill. Most charges have what they call a "base rate", and the actual decrease will depend on many factors. In fact, if you read the bill, the "expected" decrease on auto insurance will be anywhere from $120 to $1200 per YEAR. Next is the impact of these rate decreases on the insurance companies (and agents) themselves. Some of those opposed to the bill bring up a great point in that when you remove dollars from one area of a policy, where is the provision to keep those charges from not showing up in another area? So will your medical coverage costs go down thereby reducing your auto insurance bill? It looks that way. However, how much it goes down for you is yet to be determined, and as always it depends on your particular case. The one guarantee is that your bill will go down if you opt out of unlimited medical. but only because you aren't paying the MCCA fee in full any longer.
5. THE TERMS OF THE BILL WILL LIKELY CHANGE IN THE NEXT YEAR
In the next year there are likely going to be many changes to this bill. One key point is that there are provision included that allow the government to investigate the financial impact of these changes on insurance companies. That may sound harmless, however keep this in mind. Insurance companies are out to make a profit, absolutely. Welcome to capitalism. But, in MI in particular, as much as you may not believe it, insurance companies have struggled to make a profit on auto insurance and most have lost money. The carrier with the largest market share (one of the farms) has lost money on auto insurance for the last 9 years straight. So for us to think that when they sit down with the insurance department and take on a posture that hints towards them not even insuring autos in MI any longer (yes, that is possible, the lizard did it after losing too much money here) that there will be changes to the current draft. The takeaway for you is to not get too excited with what is there. It will likely change, and my guess is the changes aren't going to result in as much savings as you had been led to believe you were going to get.
The auto insurance landscape in Michigan is going to change, just how much that impacts you financially is yet to be determined in my opinion. For now, I encourage you to look at this auto insurance reform like a good old West Michigan long term weather forecast; it says it's going to be partly sunny but we all know that usually really means it will be mostly cloudy.