By Max Dorfman, Research Writer, Triple-I
Michigan̵7;s no-fault system reform law, which takes effect in 2020, has led to personal auto insurance companies paying out fewer claims and many drivers paying less in premiums, according to recent research by two Triple-I foreign researchers.
The study, No Fault Auto Insurance Reform in Michigan: An Initial Assessment, co-authored by Patricia Born, Ph.D. at Florida State University and Robert Klein, Ph.D. at Temple University, observed significant reductions in average liability premiums and loss costs for personal injury protection (PIP) in 2022. PIP covers the treatment of injuries to the driver and passengers of the policyholder’s car in a no-fault auto insurance policy.
“Our initial evaluation of the likely effects of the reform legislation indicates that it will significantly reduce the cost of auto insurance for many Michigan drivers,” the paper writes. “How much these reductions are for a given driver depends on, among other things, which PIP option they choose.”
The average Michigan policyholder paid $2,611 annually for personal auto insurance in 2019 and $2,133 in 2022, down 18 percent, according to Insure.com. Before the state’s no-fault auto insurance reform law went into effect in July 2020, Michigan regularly ranked as one of the most expensive states in the United States for personal auto insurance.
The enactment of the 2020 Reform Act allowed:
- Reduce auto insurance payouts of high PIP medical benefits;
- Establish medical cost controls;
- Expand the state’s authority to regulate personal auto insurance premiums;
- Create a fraud investigation unit within the Department of Insurance and Financial Services; and
- Limit auto insurance companies’ use of “non-driving” rating factors (eg credit-based insurance scores).
Michigan was the only state to offer unlimited medical benefits through the PIP portion of an auto insurance policy. Insurers were also severely limited in controlling the medical costs arising from PIP claims. That cost contributed to more than one in four drivers (26 percent) on Michigan roads being uninsured in 2019, the Insurance Research Council (IRC) estimated, nearly double the national average (13 percent). Michigan is one of 12 no-fault states in the United States. These schemes allow policyholders to submit claims to their own insurer after an accident, regardless of who caused the accident. No-fault states limit lawsuits to serious cases and promote faster payouts of claims.
IRC releases government auto insurance affordability rankings
Why car insurance rates are likely to continue to rise
Triple-I Issues Brief: Personal Auto Insurance Rates