We hope this summary helps you understand the big picture and how you may be impacted. If you have questions about anything related to your auto insurance, be sure to reach out to The Fulcher Group and we'll help with understanding your coverages and options.
BIG CHANGE #1
Bodily Injury Liability
First, what is Bodily Injury Liability? This is coverage for if you get sued because a person covered by your auto policy becomes legally responsible for damages related to the bodily injury of others in an auto accident.
What changed? The new law has increased the amount required for Bodily Injury Liability limits that must be carried on an auto policy. Previously, the lowest limit you could purchase was $20,000/$40,000 (where $20,000 is the limit for any one person in a single accident, and $40,000 is the limit for a single accident where more than 1 person is injured). Beginning on July 2, 2020, the new law requires limits of $250,000/$500,000 or higher unless you sign a form stating that you understand the risks of having lower limits. By signing this form, you may select Bodily Injury limits as low as $50,000/$100,000.
BIG CHANGE #2
Personal Injury Protection (PIP) Choice
What is Personal Injury Protection (PIP)? If you or a resident relative are injured in an auto accident, your insurance policy covers you and any resident relatives (regardless of fault) based on your PIP coverage. A resident relative is defined as a person related to you by blood, marriage or adoption who lives in your household including a ward or foster child that is duly appointed or established by a court of law.
Your PIP coverage is broken up into three categories: Medical Expenses, Work Loss, and Replacement Services.
Medical Expenses (PIP Medical): Your policy will pay up to your policy limits for claims covering medical expenses for the insured’s care, recovery, or rehabilitation. Charges incurred for any products, services, and accommodations must be reasonable and necessary. Reasonable funeral and burial expenses are also covered up to your policy limits.
Work Loss: Your policy will pay for your loss of income due to an auto accident up to 85% of your current salary for a maximum of three years (your policy sets a maximum per month limit as well).
Replacement Services: If an auto accident causes an inability to complete certain tasks such as lawn/garden maintenance, housekeeping, child care and more, your policy will pay up to $20 per day for up to three years.
What changed? Before the law changed, all Michigan auto policies were required to carry Unlimited PIP Medical coverage. There were no options for different limits like with Bodily Injury. Beginning July 2, 2020, you will have the following options for your PIP Medical limit:
Option 1 - Unlimited (this is still an available option but at a reduced price)
Option 2 - $500,000
Option 3 - $250,000
Option 4* - $250,000 excluding all or some person(s) from PIP Medical
Option 5* - $50,000 (Medicaid option)
Option 6* - Medicare Opt Out
Selecting your PIP option involves signing a form which explains the risks and benefits of each option. This form must be completed before a policy is issued and for each renewal (every year or 6-months depending on your policy term).
*Options 4, 5 and 6 have the following additional requirements in order for you to qualify to select them:
Option 4 - $250,000 excluding all or some person(s) from PIP Medical Applicant/Named Insured: To be excluded, they must have health coverage that does not exclude or limit coverage for injuries related to motor vehicle accidents and the annual deductible must be $6,000 or less. This coverage cannot be Medicare.
Applicant/Named Insured’s spouse and any relative of either who resides in the same household must have Qualified Health Coverage, which can include Medicare.
Option 5 - $50,000 Applicant/Named Insured: Must be enrolled in Medicaid.
Applicant/Named Insured’s spouse and any relative of either who resides in the same household: Must be enrolled in Medicaid or have Qualified Health Coverage or be covered under another auto policy with PIP Medical coverage.
Option 6 – Medicare Opt-Out Applicant/Named Insured: Must be enrolled in Medicare Parts A & B.
Applicant/Named Insured’s spouse and any relative of either that resides in the same household: Must have Qualified Health Coverage, which can include Medicare, or be covered under another auto policy with PIP Medical Coverage.
Qualified Health Coverage is defined as either of the following:
1. Other health or accident coverage to which both of the following apply:
The coverage does not exclude or limit coverage for injuries related to motor vehicle accidents AND
Any annual deductible for the coverage is $6,000 or less per individual (this amount may be adjusted annually by the Director of the Department of Insurance and Financial Services)
2. Coverage under Parts A and B of the Federal Medicare Program
As you can see, the new options can be somewhat complicated. Your Independent Agent is your best resource for help with understanding your options.
BIG CHANGE #3
Order of Priority
What do we mean by Order of Priority? If an auto accident occurs, we look to see what policy or policies have PIP coverage that applies for those who have sustained injuries. There is a set priority for which policy has to respond. We don't look to the next policy in the priority order because PIP benefits don't "stack."
What changed? The new law changed the order for which policy takes priority and is responsible to pay for claims. The differences are outlined below:
Old Order of Priority:
Your Spouse’s Policy
Resident Relative's Policy
Owner of the Vehicle's Policy
Operator of the Vehicle's Policy
Michigan Assigned Claims Plan (MACP)
New Order of Priority:
Your Spouse's Policy
Resident Relative's Policy
Michigan Assigned Claims Plan (MACP) - $250,000 limit (effective 7-2-20)
As you can see, the new law removed both the Owner of the Vehicle and the Operator of the Vehicle from consideration. So even if the Owner or Operator of the vehicle involved in an accident has an insurance policy, it does not apply and will never be responsible for paying for your PIP Medical claim. Additionally, the Michigan Assigned Claims Plan (MACP) will only pay up to $250,000 if the claim falls to them in the priority, where previously the amount of medical coverage was unlimited.
What is the impact of this change? This question depends largely on your personal situation, but there is one pretty common scenario that has huge potential repercussions. The example goes like this: Mom and Dad have an auto policy that carries Unlimited PIP Medical coverage and both kids are listed as drivers as well. Their son Johnny still lives at home, while their daughter Jane moves out of the house and is living alone in her own apartment. Since Jane no longer meets the definition of Resident Relative, there is no PIP Medical coverage for her from Mom and Dad's policy even though she is still listed as a driver. Her PIP Medical Coverage would fall to #4 in the Order of Priority: the MACP for a max limit of $250,000. In this scenario Jane should purchase her own auto policy.
There are a couple things to consider carefully, and your Independent Agent can help you purchase appropriate coverage:
Do you have anyone currently listed as a driver on your policy that is no longer a resident of the household?
Do you have anyone listed as a driver on your policy that resides in your household and is not a relative?
It gets a little more complicated: Motorcycles involved in auto accidents have their own unique Order of Priority.
Motorcycle Order of Priority:
Owner of Car's Policy
Operator of Car's Policy
The Motorcyclist's Personal Auto Policy
Michigan Assigned Claims Plan (MACP) - $250,000 limit
The Order of Priority for motorcycles involved in auto accidents did not change with the new law. This has some consequences too, as illustrated in this example: Brian is riding his motorcycle which he insures under his auto policy, and he gets injured in an accident with a car. The Motorcycle Order of Priority dictates that his PIP Medical benefits come first from the policy held by the Owner of the Car, so whatever limits that person selected for their auto policy is what Brian gets stuck with, even if they are lower than what he purchased for himself. A caveat to that point is, if the Owner of the Car had opted out of PIP Medical coverage, the priority skips over that policy since no PIP Medical coverage applied. So when moving through the priority, the first policy that has PIP Medical coverage is the one that will apply in this example.
When does this go into effect? All Pioneer State Mutual auto policies that are issued or renewed effective December 1, 2019 or later follow the new order of priority.
What about the cost reductions I heard about?
The new law requires cost reductions for the next eight years for the PIP portion of your premium. This is commonly referred to as rate rollbacks.
Rate Rollbacks by PIP Medical Limit:
Unlimited: 10% Rollback
$500,000: 20% Rollback
$250,000: 35% Rollback
$50,000: 45% Rollback
Of course, if you elect one of the Opt-Out options, you won’t have any PIP Medical coverage to pay for.
So how did lawmakers decide what percentages to roll back? Well, in addition to new choices for PIP limits, a couple other things were changed in the new law. They decided that in July of 2021, there will be a Fee Schedule for auto claims payments, similar to what exists for Medicare now. And they set new limitations on what’s called Attendant Care. We’ll look at each one separately:
The Fee Schedule works like this: If a medical procedure costs X number of dollars to perform, there will be a cap on what hospitals/doctors/practitioners can charge for that procedure. This will go into effect in July of 2021 and will be phased in gradually. The new fee schedule will be based largely off of the existing Medicare fee schedule, though the amounts will be roughly 200% of what the Medicare fee schedule dictates.
Attendant Care is the name for when an injured person needs someone to take care of them which includes care in their own home. This can be a medical professional or company who will make regular visits, or it can be someone like a family member who spends time caring for the injured person. The new law states there should be a limit on how many hours per week a family member who is not a medical professional could submit a claim to cover. The law sets the limit at 56 hours per week.
The cost-controlling measures of a Fee Schedule and Attendant Care limits can be used as filters to look at the history of paid claims to see what effect these rules would have had in the past and to help predict what rates should look like in the future. Based on their analysis, lawmakers set forth the mandated rate rollbacks.
Included in the rate rollback percentages, the Michigan Catastrophic Claims Association (MCCA) has reduced their charge from $220 per vehicle to $100 per vehicle effective July 2, 2020. This charge only applies to policies which continue to select the Unlimited PIP Medical limit.
There are a few more points to consider when answering whether your rate will go down:
The rate rollbacks apply specifically to the PIP Medical portion of your rate, and though PIP Medical makes up a significant portion of your overall bill, it’s not an off-the-top cut.
Per the law, the rate rollbacks are based on the average PIP cost per vehicle that were in effect on May 1, 2019 which is one month before the law was passed. Since the rate rollbacks are based on an average of ALL the policies an insurance company had in May 2019, you won’t be able to look at your policy declaration and calculate your new cost.
Once your policy renews after July 1, 2020 you get the new annual MCCA fee of $100 per vehicle if you keep Unlimited PIP, and you can eliminate that $100 per vehicle by selecting any of the other PIP Medical limit options.
If your Bodily Injury Liability limit is less than the required $250,000/$500,000 and you do not sign a form stating you understand the risks of having lower limits, your Bodily Injury limit will increase along with your premium related to this coverage.
Other portions of your auto premium were not changed by the new law so insurance companies are allowed to adjust their rates as needed. All personal auto rates must be approved by the Department of Insurance and Financial Services.
Other factors that could affect your premium include: tickets and accidents that have occurred since your last renewal or that are being removed from your premium calculation based on how long ago they occurred, insurance score changes, the ages of drivers, etc.
Expected Increase in Lawsuits for Bodily Injury Liability
Prior to July 2020, if you were in an accident where you injured someone and you were found to be negligent, there was never a need for the injured person to sue you to get medical coverage, because they had Unlimited PIP on their policy. Now that people can select lower PIP limits, they might run out of PIP coverage on their policy. If they still need money for care due to the accident, they will be able to sue you for those dollars. Your policy will pay for those lawsuits out of your Bodily Injury Liability limits. This new scenario means it’s more likely a claim is made against your Bodily Injury Liability limits.
Once your Bodily Injury Liability limits are exhausted, you will be responsible to pay any further damages awarded in a lawsuit from your personal assets (i.e. bank accounts, future wages, etc.). It’s a real possibility and a great reason to increase your Bodily Injury Liability limits now. You should also consider purchasing an Umbrella policy to protect your assets.
If you have any further questions, give us a call at the Fulcher Group and we'll help understand your options and make sure you are covered properly.
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