Insurance official: No guaranteed savings under new Michigan auto law

LANSING – Michigan motorists will be required to buy significantly more liability coverage under the new auto insurance law, and there are no assurances those extra costs will not offset reductions the law requires in the personal injury protection (PIP) portion of motorists' premiums, according to a top insurance industry executive.

"We sure hope that they don’t wash each other out," Tricia Kinley, executive director of the Insurance Alliance of Michigan, told the Free Press. 

"We simply don't know how the premiums will shake out."

Kinley's assessment runs counter to assurances given by Gov. Gretchen Whitmer before she signed the bill on May 30. Whitmer said she would only sign legislation that guaranteed savings for Michigan motorists.

Tiffany Brown, a Whitmer spokeswoman, said "insurance executives are attempting to scare Michiganders" in the wake of the "historic legislation" the governor negotiated.

"We will continue to use the full power of this administration, along with the Department of Insurance and Financial Services, to ensure that insurance companies are enforcing a law that protects consumers, while holding big insurance companies accountable," Brown said.

Kinley's refusal to promise overall cost savings for Michigan motorists under the new law also rankles trial attorneys, who say the savings insurers will realize through reduced medical claims should far exceed any increased liability claims.

Christopher French, an expert in insurance law at Penn State Law, said he expects that both the liability insurance portion of Michigan auto insurance premiums and private health insurance costs will increase under the new law. But French said he still expects motorists to enjoy overall savings — which he couldn't quantify — because fewer medical costs will be covered and there will be fewer medical procedures.

Under current law, Michigan motorists are generally only required to have $20,000 in liability coverage for the injury or death of one person in any accident and $40,000 in coverage for the injury or death of two or more people in an accident.

The new law sets the default minimum liability coverage at $250,000 to $500,000 for those two situations, though it does allow motorists to request and receive reduced liability coverage of $50,000 to $100,000 — still more than double what is required today.

Though still not quantified by insurers, the anticipated increase in liability insurance costs was great enough to prompt lawmakers to rush a separate bill through the Legislature last week to ensure increased liability insurance costs would not take effect until mandated rate reductions in the PIP portion of the bill begin to take effect in July 2020. As originally drafted, the requirement for increased liability insurance would have taken effect immediately — one year before the health-cost savings would have kicked in, resulting in an immediate increase in insurance costs..

Generally under no-fault auto insurance, each driver’s auto insurer covers certain costs related to vehicle damage, medical treatment and lost earnings, regardless of which driver was at fault. An at-fault driver can only be sued when someone involved in the accident suffers “death, serious impairment of body function, or permanent serious disfigurement.”

That hasn’t changed under the new law. But since Michigan motorists are no longer required to purchase policies with unlimited medical coverage, fewer medical costs arising from such scenarios will now be covered by auto insurance, and, starting in July 2020, the recovery of those costs can be sought through legal action against the at-fault driver.

Kinley heads the Insurance Alliance of Michigan, formed in 2017 by a merger of the Michigan Insurance Federation and the Insurance Institute of Michigan. Its member companies annually underwrite more than $12 billion in property and casualty insurance, representing about 90% of the Michigan market.

“The new law calls for a dramatic, and somewhat surprising, increase in mandated liability limits ... and allows personal injury attorneys to push for larger and more frequent lawsuits," Kinley said.

"Unfortunately, premiums for this part of the policy will undoubtedly go up due to this risk, but we cannot speculate by how much at this time.”

The liability insurance aspects of Michigan's new auto insurance law got little attention when the bill was hastily introduced and pushed through the Legislature on May 24, after lawmakers and the governor struck a deal the night before to end a lengthy impasse on no-fault auto insurance reform.

More:Michigan car insurance bill signed into law by Gov. Gretchen Whitmer

More:Michigan's new deal on auto insurance premiums: 10 things to know

Kinley said it is the goal of her association to save motorists money on auto insurance, but “this bill was put forward by lawmakers and agreed to by the governor — we simply don’t know how the premiums will shake out.”

The new law, Senate Bill 1, ends Michigan's status as the only state in the nation where motorists have been required to purchase unlimited lifetime personal injury protection (PIP) coverage. The law mandates eight years of savings in that portion of the insurance premium, ranging from 10% to 100%, depending on what level of PIP coverage is purchased.

PIP premiums sometimes make up 50% of a driver's total auto insurance premium, and some motorists are expected to save more than $1,000 on the PIP portion of their bills, depending on what level of PIP coverage they choose.

Kinley said Michigan's mandated liability coverage is the highest in the nation under the new law.

Steven Gursten, an attorney at Michigan Auto Law and president of the American Association for Justice's traumatic brain injury group, said that's true for the default liability coverage, but not true for the reduced liability coverage available to motorists who request it.

Kinley and Gursten agreed it's impossible to say how much more motorists will have to pay for increased liability coverage, but Gursten said insurers' increased liability costs should be nowhere near the amounts they will save from reduced PIP claims.

Gursten said the new law gives insurance companies an out for each element of the bill that was supposed to create reforms and hold the companies accountable. The companies can't redline using ZIP codes, but they can use geographic territories; they can't use credit scores but can use credit information, and they can also avoid the mandated PIP premium reductions if they can, under the terms of the statute, demonstrate to the director of the Department of Insurance and Financial Services that implementing the decreases would excessively reduce their capital or unconstitutionally deprive them of property without due process.

At Penn State Law, French said that studies show the more a state moves away from pure no-fault insurance, the lower that state's overall insurance costs become. Based on that analysis, Michigan motorists should save money under the new law, French said.

"I'm sure some of the (insurance) carriers will try to grab some of it for more profits for themselves," but market forces, along with state oversight, should help ensure that the companies' savings are mostly passed on to motorists, he said.

French said he expects that the liability costs will rise, as will motorists' private insurance costs — especially for those that opt for sharply reduced or zero PIP coverage by coordinating coverage with their health insurers. But he said he still expects Michigan residents to find that their overall insurance bill goes down.

A Senate Fiscal Agency analysis estimated that Michigan Medicaid costs will increase by $70 million over 10 years under the new law. The analysis said that because motorists will be purchasing less auto insurance coverage, state taxes based on the amount of coverage sold will decrease by about $15 million to $20 million a year.

For Kinley, "It is too soon to say" whether there will be overall savings on auto insurance bills.

"Our companies are still literally going through the bill line by line," she said. "I don’t get the sense that any company is running estimates yet, since they need to understand the big picture."

Gursten said liability insurance costs today only make up about six cents of each auto insurance premium dollar and the cost today to significantly increase liability coverage is minimal. But he agreed those low liability charges are in part related to the unlimited PIP coverage that now exists and calculations will change under a system where injured parties can sue once medical coverage caps are exceeded.

It's wrong for the insurance industry to say it can't guarantee savings under the new law and offensive for the industry to try to blame that on trial attorneys, the governor, or the Legislature, Gursten said.

The new auto insurance law was negotiated and drafted behind closed doors, and Gursten believes  "the insurance industry was working very closely with the Republicans on this legislation."

New Jersey had an auto insurance system similar to Michigan's but it did away with mandatory uncapped medical coverage in the 1990s.

But unlike Michigan, New Jersey did not require motorists to purchase increased liability coverage to go along with the lower medical coverage options, said John Sakson, an attorney who has been representing accident victims in the Garden State since the 1970s.

Mandatory liability coverage in New Jersey today is $15,000/$30,000, even lower than the $20,000/$40,000 Michigan requires under its former law, Sakson said.

Michigan is smart to require higher liability coverage as part of its new law since there will be more exposure, Sakson said.

Like other experts, he said he expects the liability portion of Michigan auto insurance bills will increase, but that the increase should not exceed the savings from reduced PIP costs.

Contact Paul Egan: 517-372-8660 or pegan@freepress.com. Follow him on Twitter @paulegan4.  Read more on Michigan politics and sign up for our elections newsletter.