Michigan's No-Fault Reform: A Game-Changer for Auto Insurance

Fewer Claims, Lower Premiums

Michigan's no-fault system reform law, effective in 2020, has led to personal auto insurers paying out fewer claims and many drivers paying less in premiums, according to recent research by two Triple-I nonresident scholars.

Impact on PIP and Liability Premiums

The study, No Fault Auto Insurance Reform in Michigan: An Initial Assessment, co-authored by Patricia Born, Ph.D. of Florida State University and Robert Klein, Ph.D. of Temple University, observed substantial decreases in average liability premiums and personal injury protection (PIP) loss costs in 2022. PIP covers the treatment of injuries to the driver and passengers of the policyholder's car in a no-fault auto insurance system.

Reform Law's Key Provisions

The 2020 reform law's enactment allowed for reducing auto insurer payouts of high PIP medical benefits, 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, and restricting auto insurer use of 'non-driving' rating factors (e.g., credit-based insurance scores).

Michigan was the only state to offer unlimited medical benefits through the PIP portion of an auto insurance policy. Insurers also were severely constrained in controlling the medical costs arising from PIP claims. This cost contributed to more than one in four drivers (26 percent) on Michigan's roadways being uninsured in 2019, the Insurance Research Council (IRC) estimated, nearly twice the national average (13 percent). Michigan is one of 12 no-fault states in the U.S. These systems allow policyholders to file claims with their own insurer after an accident, regardless of whom caused the accident. No-fault states restrict lawsuits to serious cases and promote faster claim payouts.

For drivers in Michigan, the reform has been a boon, with average premiums dropping from $2,611 annually in 2019 to $2,133 in 2022, an 18 percent decrease, according to Insure.com. This reduction in cost is not just a Michigan phenomenon; nationwide, the average annual premium for full coverage auto insurance was $1,674 in 2021, according to the National Association of Insurance Commissioners (NAIC).

To maximize the benefits of the reform, drivers should review their PIP options carefully and consider how the changes might affect their coverage needs. Additionally, staying informed about any updates to the law and understanding how their insurer is adjusting rates can help drivers make the most of the new system.