Michigan auto insurance reform, explained

Thanks to its “no-fault” system, Michigan has the highest auto insurance rates in the country, at an average of $2,693 per year versus the national average of $1,470. And because insurance companies use credit scores and other factors to calculate rates, Detroit has the highest in the state at $5,464 per year.

That’s the main reason why 60 percent of car owners in Detroit don’t even have auto insurance.

Michigan state legislators have finally sensed the urgency of the problem. Earlier this month, the Republican-controlled State House and Senate passed a pair of bills that would change important parts of Michigan’s insurance auto insurance laws. If signed by Gov. Gretchen Whitmer, the reconciled bill would likely lower premiums, but that’s not the end of the story and Whitmer has said she would veto it.

So, what exactly is at stake here? Here’s everything you need to know about Michigan’s insurance system and the effort to reform it.

What is “no-fault” insurance?

In the world of auto insurance, this means that if you get in a car accident, you are reimbursed for all damages even if you were responsible for the accident. This “liability” insurance not only covers your car, but also any physical recovery that’s needed. And Michigan is the only state that offers unlimited personal injury protection (PIP), which can cover medical benefits for potentially a lifetime.

This combination of no-fault coverage and unlimited benefits is the main reason why Michigan’s rates are so high.

Most people recognize that something needs to change about auto insurance laws in Michigan. As is often the case in politics these days, the issue is divided along party lines.

What is the Republican proposal?

Michigan Republicans have recently passed bills in both the House and Senate. Though they differ slightly, the main feature of both is the elimination of mandatory PIP in favor of several types of no-fault coverage options, ranging from zero to unlimited PIP.

The bills would also cut the annual per vehicle fee for the Michigan Catastrophic Claims Association.

There are minor differences in the bills about how many options will be available to drivers at what amount. The House bill also mandates that insurers at least offer unlimited PIP, as well as guaranteed rate reduction for PIP plans for the next five years.

Why is Gov. Whitmer opposed to the bills?

These new consumer options introduced by Republicans will likely reduce premiums, but there are no guarantees written into the legislation.

Also at issue are how non-driving factors, like credit scores and ZIP codes, contribute to insurance rates. According to Bridge Magazine, the House bill would “require state insurance regulators to identify non-driving factors used to determine insurance rates as part of a study Whitmer ordered last month, and then prohibit auto insurers from using them.”

But many Democrats say that’s not explicit enough, and that insurance companies could still claim that there is a correlation between credit scores insurance losses. State Sen. Stephanie Chang, for example, introduced a plan that would set rates primarily based on three factors: an individual’s driving record, the number of miles driven annually, and years of driving experience.

Whitmer responded to the Republican bills by saying that, “I’ve been very clear that I’m not going to sign a bill that preserves a corrupt system where insurance companies are allowed to unfairly discriminate in setting rates. I am only interested in signing a bill that is reasonable and fair and actually provides strong consumer protection and immediate financial relief.”

Democrats have also objected to the rushed nature of the bills’ passage—the Senate introduced and voted on the bill in less than a day.

What’s next?

The two bills could be reconciled this week and reach Whitmer’s desk soon after.

Will she veto it? It seems like Republicans are daring her too. And the way she’s talking, it seems likely she will.

Update: Whitmer and Republicans have reached a compromise. On May 30 at the Mackinac Policy Conference, Gov. Whitmer signed the bill, which will go into effect July 1, 2020.

Under the new legislation, insurance providers must offer five different plans with guaranteed cost reductions based on coverage.