For most Michigan drivers, how much they save under the new law will come down to how much personal risk they are willing to assume. (Shutterstock image)

LANSING—Many Michigan drivers are poised to save money on auto insurance because of new reforms set to take effect July 2, especially those who choose to accept new risk by purchasing policies with limited or no medical coverage.

This story also appeared in Bridge Michigan

But insurer filings reviewed by Bridge Magazine show some motorists may end up paying more to keep their current coverage levels, undermining predictions of universal savings. And the new law won’t stop territorial rating schemes that have long saddled Detroit with the highest rates in the nation.

“If you do nothing, don’t complain about, ‘Why didn’t my rates go down,’” Mayor Mike Duggan told Detroiters Thursday in a televised town hall, urging them to consider policy changes he had pushed for years.

“This law doesn’t cut your rates; It gives you choices.”

That’s the central promise of the law negotiated by the Republican-led Legislature and Democratic Gov. Gretchen Whitmer: Michigan motorists will no longer be required to purchase expensive unlimited medical benefits through auto insurance, and they can opt out altogether if every member of their household has health insurance that will cover car crashes.

The law also promises to prohibit insurers from setting rates based on a customer’s ZIP code, an attempt to stop them from penalizing motorists —  most egregiously in Detroit — because of where they live.

But critics say that consumer protection is toothless because insurers are still permitted to set rates based on even smaller geographic areas like census tracts or street blocks.

For motorists in Detroit, that means that even after the new law takes effect, insurance rates can still be six times higher than nearby car owners, at least according to the Bridge review of new state filings.

The ZIP code ban was a “farce to begin with,” said state Rep. Sherry Gay-Dagnogo, a Detroit Democrat who opposed the reform legislation and is exploring a mayoral run against Duggan.

“There was no real attempt to address the redlining aspect that many African-American communities, and more specifically the city of Detroit, suffer from,” Gay-Dagnogo said.

Keep your current coverage? Costs could go up

Several top insurers including AAA, State Farm and Progressive are keeping their new rates confidential until they take effect July 2, which the state allows, but those that have been made public so far show that not all policyholders will save money.

The law requires insurers to cut the personal injury protection (PIP) portion of customer premiums by at least 10 percent on average for customers who keep unlimited medical coverage. But state filings show many are only reaching that mark by counting an already-announced $120 reduction in an annual fee they assess to cover the state’s most expensive injury bills.

Citizens Insurance will actually increase the underlying cost of personal injury protection for customers who choose to maintain unlimited coverage, raising the average from $337.16 to $355.53. But the insurer is still able to claim nearly a 15 percent reduction because of the cut to the Michigan Catastrophic Claims Association fee.

Drivers who choose to purchase lesser medical coverage won’t have to pay that fee at all, a savings insurers can build into other state mandated rate reductions.

Insurers must cut personal injury protection premiums by an average of at least 20 percent for policies with $500,000 in medical coverage, 35 percent for policies with $250,000 in medical coverage and 45 percent for policies with $50,000 in medical coverage, an option available only to drivers with Medicaid health insurance.

But those savings are partially offset by another provision of the new law requiring motorists to purchase additional bodily injury liability insurance to protect against the increased risk of lawsuits. And the statute does not prohibit insurers from increasing other portions of a customer bill, such as required liability insurance or optional collision coverage.

Citizens calculated that 90 percent of its customers will see savings of some kind if they maintain their current coverage, including unlimited medical, with total costs falling by 10 percent or less on most policies. The other 10 percent of customers, however, could see premiums rise.

“Our rate filing encompassed a variety of factors, including increased bodily injury liability costs that are required by statute as well as PIP options,” spokesperson Abby Clark told Bridge Magazine.

“PIP choice is a key mechanism for Michigan drivers to realize premium savings,” she said, noting Citizens has already started selling policies that will take effect July 2. “Our early results show many customers electing a choice other than unlimited PIP.”

Farmers Insurance told the state its total premium would drop by an average of 2 percent but indicated that 8,889 of its 18,040 policy holders could see no savings or a rate increase if they maintain current coverage.

But Farmers will be “offering additional significant discounts to Michigan drivers who choose lower PIP limits,” spokesman Luis Sahagun said.

“The Michigan auto reform law also changed some rating variables used by insurers, including changes in the types of discounts drivers may be eligible for,” he said. “As a result, some drivers may see their rates adjusted downward or upward, depending on their individual situation.”

Auto-Owners insurance, meanwhile, told the state 67,705 of its 114,487 policy holders would see a rate reduction of more than 10 percent if they maintained current coverage levels. However, a small fraction – 862 – would see a rate increase of 10 percent or more.

Many of the new increases are due to new “territory definitions” the insurer is using to set rates based on geography, Auto-Owners said in a required state filing.

Where you live still matters

Duggan estimates motorists who opt out of medical coverage entirely could save 30 percent to 50 percent on their total auto insurance bill, which could mean hundreds or thousands of dollars in annual savings.

But that would still leave Detroiters with some of the highest rates in the nation, according to estimates he cited showing average yearly premiums of $4,400 in his city and $1,434 in nearby Illinois.

The new law stops insurers from using ZIP codes to set rates, but left intact the ability of insurers to charge people on either side of a street vastly different amounts.

They just have to use a geographic metric other than ZIP codes and many, including AAA of Michigan and others, were already using census tracts or even smaller census block groups.

Both are smaller than ZIP codes and the practice continues. Recent filings with state insurance officials show Detroit residents continue to face huge premiums not seen elsewhere in the state.

For instance, Citizens uses block groups — typically areas of 1,500 people or so — to set rates in Michigan.

In Detroit, most notably east of Woodward Avenue and north of the cities of Hamtramck and Highland Park, Citizens set multiplier “factors” for PIP, bodily injury and property damage at anywhere from 4 to nearly 7. Even if someone drops PIP coverage, these motorists there would still face bills that are quadruple or higher than most of the state outside metro Detroit.

Meanwhile, most suburban and outstate motorists get a discount — paying substantially lower — because of where they live.

In parts of suburban Grand Rapids, for instance, that can result in savings of 40 percent or more. A few other places, including Southfield and parts of Pontiac, Flint, Saginaw and southern Macomb County — communities, critics note, with high proportions of African-American residents — face elevated rates like those in Detroit.

Insurers have said the high number and cost of claims for PIP in Detroit and near-in suburbs has driven the higher “factors” for PIP, easily the biggest part of every auto insurance bill.

The new law bans insurers from using a driver’s FICO credit score, gender, marital status, occupation, education attainment or homeownership status to set rates. But insurers can still manipulate rates using other credit rating systems and factors like age or driving record.

Under Citizens’ filing, if the starting point for a premium— after driving record, age and gender were applied – was $1,000, that would mean a Detroiter would pay $6,690 and the person in suburban Grand Rapids would pay $520 for PIP coverage, based on Citizens’ insurance filings.

And they’d pay triple or quadruple for bodily injury and property damage while someone in the Detroit suburb of Farmington Hills would get an 8 percent to 10 percent discount for those coverages.

Citizens writes policies in Detroit but “did not previously use ZIP codes as a rating factor, and therefore did not need to change its procedures in response to the new law,” Clark said.

“There are many factors, in addition to territory factors, that influence premiums and they cannot be viewed in isolation. Thus, an increase in one specific factor doesn’t directly correspond to an increase in premium.”

A review of Auto-Owners territorial ratings showed similar differences: Detroiters still face far higher rates, often triple what is charged outside the city.

AAA has not made its new rates public.

The new law allows insurers “to pinpoint their discriminatory pricing even more precisely” than zip code, said Doug Heller, a national insurance expert who studies Michigan filings for the Coalition Protecting No-Fault Auto, a group that opposed the reform law.

“That will eventually be revealed when people start finding out what they and their neighbors are paying.”

Not every insurer has gone with smaller geographies, however. Farmers Insurance, for instance, has taken a different approach: It had used ZIP codes to set rates but will start using municipal boundaries next month.

In Detroit, that means some will see a distinct savings — and others a big increase. Before, Farmers’ highest PIP multiplier factor in five Detroit ZIP codes was nearly 4 and the lowest, in far northwest Detroit, was 1.1. Now the entire city is set at 3.2.

Reform advocates say coverage choices allowed under the new law will allow more Detroiters to afford some form of auto insurance and reduce the number of drivers who risk criminal penalties for driving without coverage or claim false addresses outside the city to secure lower rates.

Statewide, only about one-third of the Citizens customers who have already signed up for new policies that take effect July 2 have chosen to stick with unlimited medical coverage, according to Clark.

The “vast majority” are buying policies with $500,000 or $250,000 in personal injury protection, she said.

Risk and reward

For most Michigan drivers, how much they save under the new law will come down to how much personal risk they are willing to assume.

Drivers who buy policies with $500,000 in personal injury protection will see the medical coverage portion of their bill drop by 22 percent on average, even when factoring in the new “default” increases for bodily injury liability coverage, according to an analysis of both public and confidential filings by the state Department of Insurance and Financial Services.

The savings could be even larger for households in which all family members have Medicare or private health insurance policies that cover auto accidents with an individual deductible of $6,000 or less. Drivers who provide their auto insurers with proof of that health coverage can opt out of personal injury protection altogether.

Motorists who choose lesser coverage are “playing Russian roulette, and they’re betting that if they get in a car crash, they will not be seriously injured,” said Stephen Gursten, a personal injury attorney with Michigan Auto Law in Farmington Hills and a critic of the new law.

While health insurance will cover direct medical bills arising from car crashes, injured drivers that choose cheaper auto policies will receive inferior long-term care, said Margaret Browning, an attorney who serves as a legal guardian for catastrophic crash victims.

One of her wards, 23-year-old Patricia Ward of Fenton, was severely injured in a 2016 crash and is unable to speak, eat any food by mouth or walk. With more than $2 million in costs covered through her auto policy so far, she lives in a residential rehabilitation home that specializes in brain injury recoveries and is in speech therapy, with the hope of some day being able to talk again, Browning said.

Another, 32-year-old Cristina McVeigh of Riverdale, did not have auto insurance when she was severely injured in a 2017 motorcycle crash. Medicaid has not covered continued speech therapy and other possible treatments, Browning said of McVeigh, who lives in a nursing home and spends most of her days “in bed watching television.”

“Both of these girls are trapped in their own bodies,” Browning said, “but Patricia may get the key. She may be let out.”

Cristina McVeigh of Riverdale, seen here before and after a 2017 motorcycle crash. (Courtesy photos by Margaret Browning, legal guardian)

Duggan has sent all Detroit city employees a health insurance letter they can use to opt out of personal injury protection in their auto policies. But he also acknowledged that drivers who choose to retain unlimited coverage “will get more service because you’re paying the most,” calling that a value proposition each motorist will need to consider.

“I think that’s a real American concept of having a little bit of choice and a little bit of responsibility,” said Sen. Aric Nesbitt, R-Lawton, who sponsored the reform law and predicted additional savings next year when a new “fee schedule” for medical providers kicks in.

Michigan medical providers have long billed auto insurers more than health insurers, who generally negotiate lower rates for similar treatment and care.

“With enhanced choices, you accept enhanced responsibilities, and with that, you can acquire enhanced savings,” Nesbitt said.

The Michigan Health and Hospital Association, an advocacy group for medical providers, is encouraging drivers to keep unlimited medical benefits as they consider new auto insurance options.

“We want people to buy as much coverage as they can afford,” said senior vice president Ruthanne Sudderth. “We’ve seen what happens to people when they’re severely injured, especially, and how much care they need, sometimes for a lifetime.

“We want people to carefully weigh the savings versus risk.”

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