3 years since Michigan auto insurance reform, did it do what was promised? A look at the data

It's been three years since Michigan lawmakers passed a bipartisan auto insurance reform package that promised to save us all money. Well, did it? Here's a look at the numbers and what should be done next.

Years ago, Wendy’s had a television commercial. A wonderfully ironic grandmother by the name of Clara Peller would exclaim at the top of her lungs “Where’s the Beef?” In looking back on the 2019 Senate Bill 1, we are left asking something similar.

To steal a line from the Governor Whitmer, where’s the damn beef? When she signed the no-fault reform bill on a sunshiny Mackinac Island May afternoon, a smiling crowd of Democrats and Republican proudly congratulated themselves. No-fault change had been elusive for more than two generations. In this “reform,” they proclaimed, we Michigan drivers would get massive cost savings. They led us believe our highest-in-the-nation auto insurance premiums were a thing of the past.

Here’s the reality. Zebra.com, considered the auto insurance authority these days, tells us in its 2022 state by state auto insurance rankings: Michigan saw the following average annual rates dropped from $3096 in 2019 down to $2535 in 2020, an 18% decrease. But rates increased four percent in 2021 from $2535 to $2639.

So, we saw marginal savings at best.

Digging into the report, Michigan retains its dubious distinction of the highest rates anywhere. On an individual basis, Zebra reports Michiganders with the highest individual auto insurance rates in the nation and Detroit the city with the nation’s highest auto insurance rates. Once again, we ask “where’s the beef?”

So, what happened?

We checked in with Amanda Nothaft, Ph.D. She does a lot of the number crunching for Poverty Solutions at the University of Michigan. The legislature depended on Poverty Solution’s data to try and craft this no-fault reform. Dr. Nothaft told Local 4, “the law is a really great first go at this” but added “there is still more work that needs to be done.” We’ll discuss that part in a moment.

Why we didn’t we see the rates drop in the promised fashion is a three pronged problem. Dr. Nothaft says three things need to change for our rates to fall to “there’s the beef” territory.

1. The bill did not eliminate lifetime, long-term medical benefits under what is called P.I.P. or personal injury protection. Instead, the vast majority of Michiganders chose to keep it. This put a floor on how low rates could drop. Nothaft says of this development “a car accident of that magnitude is a very low probability event, but people want to protect themselves and they are used to having this coverage.” “I think there are people just waiting to see how this all plays out, how the reforms play out before opting for lower coverage.” To get a window into just how much coverage we are buying, New Jersey is the next closest state for P.I.P. and its cap is $250,000 in coverage.

2. Senate Bill 1 eliminated the use of non-driving factors like zip codes and credit scores. Great idea. The reality though is insurance companies have developed what are called “territories” and “insurance scores.” These keep many buyer’s rates high. Nothaft believes “Those territories could be, are probably mirroring the affected zip codes because the law does not dictate how the territories are defined. An insurance score is just a credit score with different weighting”.

3. Senate Bill 1 caps medical costs. This was done because of abuse in medical billing. The system became rife with bloated medical costs. The bill uses Medicare as a guide on how to pay out benefits. This had severe unintended consequences. With less money coming into the system, many of the medical providers servicing severe accident victims needing long-term care found themselves scraping to get by or even going out of business. With this, those patients, the best known perhaps is former Detroit Red Wing defenseman Vladmir Konstantinov, are losing the daily care they’ve depended on for years. There is a lawsuit pending attacking this corner of the law. Nothaft believes this is Senate Bill 1′s biggest deficiency: “the law needs to be rethought on the long-term care costs and provide, give the providers some sort of relief or recourse when they feel what they’re being reimbursed for is in line with the care they are providing.”

Now, to be sure, insurance companies are not always the bad guy here. No fault insurance in and of itself is a monumentally expensive as a system. People still steal cars and trucks wholesale throughout Michigan, and certainly in Detroit. This drives up costs.

Many still drive without insurance also driving up costs. Medical providers are not always the bad guys here either. Unwinding the Gordian Knot created by a 1970′s insurance law is difficult. It came with all the right intentions but progressed into all the wrong results. The reform has left many of our neediest in the lurch. These long-term care patients desperately need some help.

While House Speaker Jason Wentworth has said he expects no new or major legislation this year to deal with this problem, that is not preventing representatives on both sides of the aisle from working on solutions. Where this is headed in the days to come is anyone’s guess. But we all would like to see a better solution, considering gasoline prices and inflation have long since eaten away any-and-all of that meager 18% the Legislature and the Governor so proudly promised three years ago.


About the Author:

Rod Meloni is an Emmy Award-winning Business Editor on Local 4 News and a Certified Financial Planner™ Professional.