LANSING — Michigan is giving new scrutiny to auto insurance rates, beefing up anti-fraud investigations and mounting a public education campaign in an effort to help drivers realize savings promised in a new law that takes effect this summer, a top state official said Wednesday.
No-fault auto reforms pushed by the Republican-led Legislature and signed by Democratic Gov. Gretchen Whitmer will require insurers to reduce personal injury projection premiums for consumers who choose to buy policies with limited medical benefits.
To help ensure that happens, the Michigan Department of Insurance and Financial Services is contracting with six independent firms to review underlying risk assumptions insurers use to set their rates, director Anita Fox told reporters in a media roundtable.
“It’s a big change for all of us after more than 40 years of the old system,” Fox said of the new law, which will prohibit insurers from selling policies without prior approval from the state. “We want to make sure that the new rates comply with the law.”
Michigan had been a “file and use” state, allowing insurers to sell policies immediately upon submitting paperwork to the department. They were still subject to subsequent review, but the state had only one actuary to assess policies offered by more than 100 insurers.
It was “more of a spot check to make sure the ducks were in a row,” Fox said of the old system.
Insurers are required to offer new policy choices to consumers by July 1, and with that date fast approaching, several companies have already filed proposed policies with the state.
“Nothing has been approved or completely rejected right now, but there certainly have been objections,” Fox said, telling reporters the department has already told some insurers to revise policies that did not fully comply with new requirements.
Michigan auto insurance rates have routinely ranked among the highest in the nation. Reformers claim that’s largely because the state had long required unlimited lifetime medical benefits for catastrophic crash victims.
The new law instead gives motorists a choice to purchase policies with as little as $250,000 in medical coverage or opt out entirely if they have Medicare health insurance. In exchange for that flexibility, insurers will be required to roll back average personal injury protection premiums by at least 10 percent for eight years.
Critics contend the promised cost savings may prove a mirage because the law also requires consumers to purchase additional bodily injury liability coverage to protect themselves in the event they cause an accident and are sued by another driver.
Drivers who purchase plans with reduced medical benefits and sustain catastrophic injuries “will spend their benefits within a few weeks, if not sooner,” according to a warning from The Coalition Protecting Auto No-Fault, which is leading a lawsuit over separate hospital fee schedules and hourly attendant care caps also included in the law.
“Meanwhile, any dollars saved through reduced PIP premiums will likely be offset by increases in liability premiums required under the new law,” the group claims.
But the state is not expecting that to happen, Fox said Wednesday. Even for consumers who elect to continue unlimited lifetime medical benefits, “our anticipation is they will see a rate decrease,” she said. Total costs will depend on an individual’s driving record and policy choices, but the department does not expect higher liability premiums to “zero out” the savings.
Legislative Republicans who pushed the state reform have predicted an annual average savings of between $120 and $1,200 per driver, likely more in cities like Detroit that are known for astronomical rates.
Fox said the state is also reviewing proposed policies to make sure auto insurers are not basing rates on non-driving factors prohibited under the new law, including gender, marital status, home ownership, educational level, occupation, credit score or ZIP code. Insurers can still base rates on territorial boundaries, but those should not be “substitute for ZIP codes,” she said.
Funding for the new law has allowed the department to hire roughly 20 new employees, including staff now working on a beefed up anti-fraud unit in collaboration with Attorney General Dana Nessel’s office.
Former Gov. Rick Snyder first created an anti-fraud auto insurance unit through executive order in 2018, but the state had not actually provided any funding for the department to hire staff.
As a result, more than 1,600 complaints had piled up without formal action, Fox said. Investigators are now in the process of “triaging” that backlog to set up cases for possible protection by the attorney general.
“We are very excited about what’s going to happen in that unit for the coming year,” said Fox, who Whitmer appointed to the post in early 2019. Criminal prosecutions will serve as a deterrent for “industries that have built up to take advantage of consumers, or consumers trying to get around the law by buying policies that weren’t really policies just to get their plates.”
State officials are expecting some public confusion over the new law but say they are ramping up efforts to help consumers navigate the new system. Insurance agents will be required to explain new policy choices to motorists, and the state has created a sample form with four pages of detail.
As of last fall, just 12 percent of motorists said they were “very familiar” with the auto insurance reform law, according to a survey conducted for the Michigan Health and Hospital Association. A majority of drivers said they’d only “heard of” the law or were “not at all familiar” with it.
Roughly 24 percent of motorists said they would “opt out” of medical coverage all together if given the option, according to the hospital association, which warns that private health insurance will not cover the full range of services included in unlimited auto insurance policies.
The Michigan Department of Insurance and Financial Services on Wednesday announced a new auto insurance reform website that explains the law to consumers and has established a dedicated hotline to answer questions at 1-833-ASK-DIFS.