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By Max Dorfman, Research Author, Triple-I
Michigan’s no-fault system reform law, enacted in 2020, has resulted in private auto insurers paying fewer claims and many drivers paying lower premiums, according to recent research by two non-resident Triple I scholars.
The study, No Fault Auto Insurance Reform in Michigan: An Initial Assessment, co-authored by Patricia Born, Ph.D. from Florida State University and Robert Klein, Ph.D. from Temple University, observed a significant decrease in average liability premiums and personal injury costs (PIP) in 2022. PIP covers the treatment of injuries to the driver and passengers of the policyholder’s car in a no-debt car insurance scheme.
“Our initial assessment of the likely impact of the reform legislation indicates that it will significantly reduce the cost of auto insurance for many Michigan drivers,” the paper reads. “How high these reductions are for a specific driver depends, among other things, on the selected PIP option.”
The average Michigan policyholder paid $2,611 annually in 2019 and $2,133 in 2022, down 18 percent, according to Insure.com. Before the law reforming the state’s no-fault auto insurance system went into effect in July 2020, Michigan was regularly ranked as one of the most expensive states in the US for personal auto insurance coverage.
The passage of the 2020 Reform Act enabled:
- reducing auto insurer payouts for high PIP medical benefits;
- introduction of medical cost controls;
- expanding state powers to regulate personal auto insurance filing;
- establishment of a fraud investigation unit within the Ministry of Insurance and Financial Services; And
- Limiting the use of no-drive rating factors by auto insurers (e.g., credit-based insurance ratings).
Michigan was the only state to offer unlimited medical benefits through the PIP portion of an auto insurance policy. Insurers have also been severely limited in controlling medical costs arising from PIP claims. Those costs contributed to more than one in four drivers (26 percent) on Michigan’s roads being uninsured in 2019, the Insurance Research Council (IRC) estimated, nearly double the national average (13 percent). Michigan is one of 12 debt-free states in the US. These schemes allow policyholders to claim against their own insurer after an accident, regardless of who caused the accident. No-fault states limit claims to serious cases and encourage faster payment of claims.
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