Building on Michigan’s Auto Insurance Reform Law
By Amanda Nothaft and Patrick Cooney
Michigan drivers have long paid the highest auto insurance rates in the country. By mandating unlimited personal injury protection (PIP) for all drivers and failing to regulate reimbursement rates for medical providers, the state’s average insurance rates had ballooned to over $3,000 per year by 2019, nearly $800 higher than the next closest state. While Michigan rates were high, rates in its biggest city, Detroit, were astronomical, with drivers facing an average rate of over $6,300, a function of the unlimited PIP requirement coupled with insurance discrimination based on geographic and other non-driving factors. In the spring of 2019, the Michigan legislature passed sweeping reforms to Michigan’s auto insurance laws, with the goal of driving down these exorbitant rates. These reforms began to take effect in the summer of 2020.
In this brief, we analyze the early outcomes of auto insurance reform more than a year after the initial provisions of the law went into effect. In a 2019 brief, which was widely cited in the run-up to reform, we argued that high auto insurance rates erected a significant barrier to economic mobility, forcing those with low incomes to go without a car, dedicate a large share of their limited income to insurance premiums, or drive without insurance, exposing them to legal penalties. Here, we evaluate the success of auto insurance reform through the same lens, seeking to understand the extent to which recent reforms have offered Michiganders a boost in their pursuit of economic mobility.
We will provide some background on the 2019 law, use preliminary data to describe the impact of the law more than one year after taking effect, and discuss what still needs to be done to ensure the cost of auto insurance does not continue to stand as a barrier to economic mobility for Michigan residents. Early data find the average cost of auto insurance declined significantly in Michigan from 2019 to 2020—a steeper decline than anywhere else in the country. However, the cost of insurance remains unreasonably high for many Michigan residents—and Detroit residents in particular. We will outline how Michigan’s insurance laws can be improved to further reduce rates statewide and in Detroit. In addition, we will discuss some of the early, unintended consequences of the reform law, such as reduced revenues for long-term care facilities, and outline how careful policy reforms can assure quality long-term care for vulnerable Michiganders, while not driving up insurance rates across the system.
- The reforms instituted through the 2019 auto insurance reform law made a difference. Early data suggest rates across the state have fallen by nearly 20%.
- Even with these reductions, Michigan rates remain the highest in the country, and average rates in Detroit still eat up over 18% of the median household income in that city.
- Insurance rates are still highly correlated with race, and more can be done to eliminate the discriminatory impact of using non-driving factors to calculate rates.
- The method used to cap medical fees may be unnecessarily stringent and out of line with national peers, causing a crisis in access to care for victims of catastrophic accidents that occurred prior to reform.
One year after certain elements of the auto insurance reform law went into effect, average insurance rates have fallen considerably in Michigan, but remain the highest in the country and unaffordable for nearly every jurisdiction in the state. To further lower rates, and ensure high auto insurance prices don’t continue to stand as a barrier to economic mobility, lawmakers could do the following:
- Offer greater choice in personal injury protection coverage. While the changes to PIP made in the 2019 law clearly had an impact on rates, Michigan is still an outlier in the amount of PIP drivers have to purchase. More could be done to lower rates by aligning with PIP practices in other states.
- Require insurance companies to build certain factors, at certain weights, into their models for calculating rates. In the 2019 law, the state barred insurance companies from using a number of non-driving factors to calculate insurance rates, only to see insurance companies use proxy measures to replace the prohibited factors. This meant that while the 2019 law reduced rates for all Michigan drivers, it did nothing to reduce discriminatory pricing by race. To reduce rates in majority-Black zip codes, Michigan should look to California, where insurance companies must give a certain weight to three mandatory, driving-related factors in calculating their rates: driving record, annual miles driven, and years of driving experience. By dictating what factors insurance companies have to consider and the weight they must give those factors—rather than the current practice of specifying what factors they cannot consider—the state can limit the discriminatory impact
of non-driving factors.
- Revisit reimbursement rates for services not on the Medicare schedule, and use the Catastrophic Claims Fund to support long-term care. While containing the costs of medical fees is integral to reducing auto insurance costs, the sharp reduction in reimbursement rates for long-term care providers may drive providers out of business, resulting in poor outcomes for auto accident victims requiring long-term care. Lawmakers should revisit reimbursement policies for services not on the Medicare fee schedule, looking to models in other states that have implemented a more nuanced approach. In addition, lawmakers should seek to utilize the surplus in the Catastrophic Claims Fund to restructure how that fund is used to support long-term care facilities.
The 2019 reform law was an essential first step, but lawmakers should not be content. When we first wrote about Michigan’s high auto insurance rates in 2019, we emphasized the ways in which high auto insurance rates create a barrier to economic mobility. For many Michigan drivers, this barrier has not been adequately diminished. More must be done to eliminate discriminatory rate setting practices and further curb the impact of PIP on rates. However, while we continue to push for lower rates, we must carefully consider the impact on those receiving long-term care and ensure that providers are reimbursed for services in a way that enables those who have been catastrophically injured in an auto accident to receive the care they need.
The passage of the 2019 reform law was years in the making and made meaningful changes that lowered rates for Michigan drivers. Now, more than two years after the passage of the law, we should celebrate what’s working right and fix what’s not, to ensure Michigan’s insurance system does not stand as a barrier to opportunity and also provides security and peace of mind to Michigan drivers.