Automobile No-Fault Law has changed dramatically and you need to know how to navigate the new insurance coverage choices you are now required to make. The choice you make can affect not only you but your family and occupants of your motor vehicles if you are involved in a crash. We believe the best choices are those based on the facts, knowing what options are available to you, and what risk you are willing to take. This Guide explains the Options available to you under the new law, the risks, and some of the costs, to help you to make an informed decision.
The new No-Fault law makes a complex system even more confusing and difficult for a layperson to navigate. The savings touted under the new law are likely to come at the expense of those who can least afford it: automobile crash survivors who have suffered catastrophic and often life-changing injuries. Worst of all, it remains to be seen whether those savings will actually trickle down to motorists, who are discovering that they now have less coverage without a correspondingly significant reduction in premiums.
HERE ARE THE HIGHLIGHTS OF MANY OF THE CHANGES UNDER THE NEW NO-FAULT LAW:
The biggest change for Michigan motorists is that mandatory comprehensive lifetime No-Fault insurance coverage has been replaced by a tiered system that allows individuals to opt-out or purchase as little as $50,000 worth of coverage for medical expenses under certain circumstances. Other options include $250,000, $500,000, and No-Limit. The No-Limit Option is the closest coverage to what we all had under the Old Law.
The protections afforded to drivers and owners of motor vehicles that cause a crash have been nearly eliminated. Drivers are now exposed to liability for economic damages they never before had to consider. Worse, accident victims in many circumstances are now dependent on coverage purchased by someone else.
The new law prohibits insurance companies from the practice of “redlining” and states that they can no longer use certain credit scores to determine insurance premiums. However, insurance companies may still be allowed to use “insurance scores” which use some, but not all, factors in your credit history to determine how you are likely to manage your risk exposure.
The market-based limitations on the cost of medical care built in to the prior system have been replaced with government mandated caps on what hospitals, doctors, and other healthcare providers can charge.
With the coverage tier provisions of the new law now in place, Michigan drivers must make automobile insurance choices they have never had to make before. Making these choices in an informed and responsible manner requires knowledge of both the ins and outs of the state’s new automobile insurance law and an understanding of the types and scope of coverage provided by government and private health insurers.
Perhaps the most significant decision that Michigan drivers must make is selecting a level of coverage for that portion of Personal Injury Protection (PIP) that is called “allowable expenses” and includes medical bills and other expenses related to your care, recovery, and rehabilitation.
Here are the PIP choices motorists must now make when renewing their policies:
Governor Whitmer signed Senate Bill 1, and the first round of No-Fault changes went into effect. Initial changes included a new definition of what constitutes “serious impairment of body function,” new rules covering independent (insurance) medical examinations and new rules for crash victims who are out-of-state residents.
Two important things to note here:
1. Michigan legislators opted not to include a “grandfather clause,” which would have ensured the changes did not apply to people injured in accidents before the change in the law. The result is many of the changes in the current legislation affect people who were injured in accidents many years ago despite the fact that those people paid premiums for better coverage. Premiums that were paid were based on higher coverage; now, much of that coverage is reduced or eliminated without any refund to motorists.
2. While the law went into effect immediately, the public cannot purchase new insurance policies with lower coverage (and supposedly less expensive premiums) until over a year later. Insurance companies will benefit from higher profits almost immediately as a result of these changes.
The first date when insurance companies can legally begin offering new policies.
Hospitals, doctors, and many health care providers must align their charges under government price controls. That might sound like a good thing for accident victims, but it establishes an impossible and unsustainable price structure on many providers of medical care that will ultimately limit available care options and may close hospitals and clinics.
Insurance companies are no longer required to pay family members, friends, and prior acquaintances for all of the attendant care they provide. Insurance companies are only required to pay 56 hours per week of attendant care provided by family and friends, forcing victims and their advocates to hire more expensive home care agencies. Family-provided attendant care is not only one of the most cost-effective forms of care, but most doctors agree it results in better outcomes for the patient.
A NOTE ON THE “SAVINGS” EXPECTED
It is important to note that the mandated savings for each of the coverage options above do not apply to the entire policy, but only to the PIP portion (around 45%) of the total insurance cost. For example, if you paid $2,000 for your total automobile insurance in May, 2019, under the new law, if you picked a $500,000.00 PIP policy, your savings would likely only be $180.00. Meanwhile, you and your family are now exposed to possible bankruptcy if you are involved in a crash resulting in catastrophic loss and can now be sued for the other person’s medical expenses if you cause the crash.
Also, the new law “does not prohibit an increase for any individual insurance policy premium if the increase results from applying rating factors,” so it is quite possible if your insurance company “re-rates” you or your family members, your premium will increase.
There is one final note on the “savings” supposedly built into the new law. The language of the statute very carefully states the new premiums “must result, as nearly as practicable, in an average reduction per vehicle from the premium rates for personal protection insurance coverage that were in effect for the insurer on May 1, 2019.” Essentially, the intent of the clause is to not mandate a specific savings for motorists but to provide for an average savings for everyone insured by a particular insurance company. However, expect insurance companies to simply claim it isn’t “practicable” to make the reductions. Remember, the reductions refer to the insurance company’s average, not your policy.
ADDITIONAL NOTES & COVERAGE CONSIDERATIONS
Under the New No-Fault System all owners and drivers are potentially responsible for millions of dollars in damages they were never responsible to pay before.
BODILY INJURY COVERAGE
Under both the Old and New No-Fault Systems all motorists must purchase a minimum amount of bodily injury coverage. This coverage is the amount an insurance company will cover the driver and owner of a motor vehicle who is negligent and injures another person. Under the Old No-Fault System, the minimum amount all motor vehicle owners had to purchase was coverage for $20,000 because of bodily injury or death of 1 person in any 1 accident and $40,000 because of bodily injury or death of 2 or more persons in any 1 accident. These were known as 20/40 policies.
As of July 1, 2020, all motor vehicle owners must now purchase higher bodily injury coverage amounts. The new coverage minimum amounts are $250,000 per person and $500,000 per accident. When applying for insurance, if you want less coverage, an option exists to reduce this coverage to $50,000 per person and $100,000 per accident. To exercise this option to reduce coverage, insurance companies require motorists to sign a form approved by the Director of Insurance and Financial Services. This form is required because making this election for lower coverage is very financially risky, especially because drivers and owners of motor vehicles are now potentially liable for medical bills.
Under the New No-Fault System all owners and drivers are potentially responsible for millions of dollars in damages they were never responsible to pay before. Because motorists are now potentially responsible for someone else’s medical expenses, they would be wise to select the highest coverage best suited to protect their assets, including their home, cars, and bank accounts.
UNINSURED MOTORIST & UNDERINSURED MOTORIST COVERAGE
This coverage provides protection for anyone hit by a driver without insurance—or without sufficient insurance to cover your damages. While there are no minimum amounts mandated in Michigan, most motorists would be wise to purchase as much Uninsured Motorist and Underinsured Motorist Coverage as they can afford.
Anyone who selects one of the non-Lifetime Options for No-Fault coverage and is subsequently struck by someone with either no or low Bodily Injury coverage could be left with no means to pay their bills—unless they have purchased Uninsured Motorist and Underinsured Motorist Coverage (and provided that they were not more than 50% at fault for causing the crash).
Every Michigan motorist is affected by these sweeping changes to the law. While premium reductions have been touted, the new limited coverage options do not ensure that an individual motorist’s insurance rates will actually go down. Advertised savings can be misleading, as specific numbers that have been cited are an average across all policies.
Numbers like $250,000 and $500,000 might sound substantial, but they are a drop in the bucket for someone recovering from a serious injury. Michigan residents would be wise to ask “What can I not afford?” rather than “What can I afford?”
Every driver (and passenger) in the State of Michigan now faces an elevated level of risk and liability. And that’s a problem, because this complex new legislation makes thoughtful risk assessment difficult and informed decision-making a challenge for Michigan motorists. Whether or not it was intended, the bottom-line result is that Michigan drivers now have to make potentially life-altering choices with possibly dramatic financial implications.
With the stakes so high, Michigan motorists should make it a priority to educate themselves and understand their options – even if they’ve already purchased coverage – so they may adjust their elections to best protect their families, assets and themselves.