Reforms bearing fruit for Michigan's troubled auto insurance market
Insurers are paying out less in claims and policyholders have seen premiums drop following 2020 changes to the state’s no-fault system.
Reforms to Michigan’s no-fault auto insurance system and other regulatory revisions enacted in 2020 are showing indications of successfully lowering auto insurance premiums and reducing claims costs for insurers, according to a paper co-authored by Patricia Born, Ph.D. of Florida State University and Robert Klein, Ph.D. of Temple University.
Among its range of changes, the package of reforms allows policyholders to opt for less than unlimited personal injury protection (PIP) coverage medical benefits. Previously, the state allowed for unlimited PIP medical benefits, which was the main driver of premium increases in the state, according to the paper.
Other provisions of the reforms, according to the Insurance Information Institute (Triple-I), included:
- Instituting medical cost controls.
- Broadening the state’s authority to regulate personal auto insurance rate filings.
- Creating a Fraud Investigation Unit within the Department of Insurance and Financial Services.
- Restricting auto insurer use of “non-driving” rating factors (e.g., credit-based insurance scores).
Premiums plummet, claim costs calm
From 2019-2022, the average auto insurance premium for all coverages in Michigan declined 18.3%, while liability coverages saw premiums drop 23% and PIP coverages decreased 43.3%. During the same period, the national average auto insurance premium increased from $1,457 to 1,682, a 15.4% jump, according to data from Insure.com.
The paper noted that as drivers become more familiar with the reforms and coverage options, more may decide to lower PIP limits to uncover more savings.
Further, from 2020-2022, insurers saw paid claim severity decline 27%. The paper noted a significant drop in PIP severity was seen during the period, indicating reforms had the intended effect of reducing payments on PIP claims.
In 2019, Michigan had the highest average auto insurance rates countrywide. The following year it dropped in the ranking to number 2, and in 2022 it had the fourth-highest auto insurance premiums nationwide. This past year, Florida has the highest average personal auto rates, followed by Delaware and Louisiana, respectively.
There are indications the reforms have also helped reduce the number of uninsured Michigan drivers, according to the paper, which found that high rates kept coverage unaffordable for some motorists. In 2019, nearly 26% of Michigan drivers were uninsured, according to the Triple-I, which noted this was almost twice the national average for that year.
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