After all of these changes, drivers in Michigan have one big question: Will this finally reduce the high cost of car insurance?
Insurance industry representatives say they’re trying to figure that out. The law contains changes that could reduce, shift, and add to costs for drivers.
How Michigan’s changes might lower car insurance rates:
The new law requires insurers to reduce the cost of only the PIP portion of insurance, which makes up about half of a typical insurance premium, until July 2028. Drivers who choose to keep unlimited PIP coverage will see about a 10% savings, while those who choose less coverage will see even bigger discounts. Some lawmakers have speculated that drivers who opt-out of PIP coverage could save more than $1,000 per year.
Insurers will still be allowed to raise prices on the non-PIP parts of car insurance, but lawmakers believe drivers will still see overall savings.
The new limits on medical billing (i.e. the cost of an MRI would max out at about twice what Medicare would pay) are also expected to rein in the cost of car insurance in Michigan. While this could reduce costs in the short term, the full impact won’t be realized the medical fee schedule goes into effect starting in 2021.
How Michigan’s changes might raise car insurance rates:
Lawmakers more than doubled how much liability coverage drivers will be required to buy, from $20,000 in coverage for accidents with one injured person and $40,000 for accidents with two or more injured people to $50,000 and $100,000, respectively.
Insurance industry representatives have said this increasing liability cost could cut into savings drivers would see from PIP reductions.
And how Michigan’s changes might shift costs around:
Insurers will have to adjust their pricing formulas to account for the new ban on certain non-driving rating factors. Things like your level of education and whether you own or rent your home will no longer impact what you pay for car insurance.
This change likely won’t reduce the overall cost of car insurance in Michigan. However, it will change how those costs are distributed to individual drivers. In other words, the rating factors that are left — like your annual mileage and driving record — could carry more weight.