Update on Auto Reform

8/12/2019

Your PIA Pres. Bill Brewbaker and Legislative Chair Jeremy MacDonald met with the Department of Insurance & Financial Services to discuss the new law. There are a lot of changes and a lot of questions yet to be answered. Our goal was to assist DIFS in developing forms & procedures that will make it as smooth as possible to make the transition for you our member agencies, and most importantly, for our clients. We wanted to provide you some information, as best we know at this time, so you and your staff can answer questions & best serve the consumers.

To give you an overview, best we understand it at this point, the changes now in effect (as of 6/11/19) are mostly specifying “who is an insured for PIP” under the auto policy. It is now limited to the Named Insured, their Spouse & Resident Relatives. Those not covered are nonmembers of the household (think about: kids using parents & grandparents vehicles even if listed as a driver, if they do not live in that household, (this does NOT apply to a student in college). Also not covered are non-married couples living in the household together, when only 1 is a named insured. This leaves the “Non-Named Insured” without coverage under that policy. The residents of MI not covered above will need to submit claims to the MAIPF which operates the “MI Assigned Claims Plan” (MACP) with a limit of $250,000. Commercial Vehicles will cover the Employee, their Spouse & Resident Relative at the limit the employer chooses on the Commercial Auto policy, once choices are being made. Workers Comp would still apply while on the job.

Largely the changes to the No-Fault go into effect after 7/1/2020. The state law will dictate a default limit of $250,000/$500,000 on BI, and Unlimited on PIP. DIFS is developing forms for both coverages for consumers to choose their preferred limits. The way the law is written, if the customer does not return the form at their renewal (and every renewal in the future), they default to those limits. Clients can choose as low as $50,000/100,000 on BI, and the new PIP choices are $250,000, $500,000, and Unlimited. Those who are on Medicaid can opt for a $50,000 limit. There is also an opt-out option for retired people on Medicare, and those people whose health insurance qualifies to pay MI Auto Injuries. If someone decides to opt-out, and later lose their qualified health insurance, they will have 30 days in which to choose a PIP limit. During that 30 days, they are eligible for $2M in MACP, but on day 31, they do NOT have any PIP coverage.

Motorcyclists have previously benefited from Unlimited Medical PIP from the vehicle they collide with. Next July, they will be subject to the limit the other vehicle has, regardless of what they choose on their personal policy!

Vehicle occupants, pedestrians and bicyclists not otherwise insured with PIP coverage will be subject to the $250,000 limit thru MACP.

The new PIP choices have mandated discounts for each limit chosen:
Unlimited = 10%
$500,000 = 20%
$250,000 = 35%

These are a company’s average % savings, not an individual %, so clients’ savings may differ on their individual policies. Also, the cost for MCCA will be reduced.

Also after 7/01/2020, Mini Tort limit increases to $3,000.

Effective July 1, 2021, the new fee schedule will be effective, even though the carriers will have been required to discount their rates based on this fee schedule in July of 2020.

Effective 7/01/2020, the ‘No Prior Insurance’ clause goes in effect, it prohibits an insurer from refusing to offer, charging a reinstatement fee, or increasing premiums to those people who previously failed to maintain automobile insurance. This applies to applications made before 1/01/2022, so this is just an 18 month window.

In our discussions with DIFS, we have asked for the procedure to allow the choices to be available by endorsement (as opposed to cancel/rewrite of policies on 7/2/20 to comply) and DIFS was very receptive to that, provided the carriers can handle the amendment. DIFS is also receptive to only requiring the signed forms at each renewal if the current choice is less than the $250,000 minimum. We have also encouraged them to include in the forms, options for higher limits of BI as well as UM/UIM to be chosen. Additionally, we suggested they include information on the forms and their website explaining the choices. Especially noting that someone opting out of PIP, due to qualified health insurance, has 30 days to notify their auto
insurance carrier if they lose that coverage, and the repercussions if they do not. Nothing is finalized yet, but we are very encouraged that DIFS, as well as several carriers we have contacted, all want to work together, including the Independent agents in the process, to make this transition as painless as possible for all concerned.

There are still many questions they could not answer yet: questions about how non-medical expenses like Attendant Care, Lost wages, Lost Services, and Survivor Benefits will be addressed, it appears some of those costs will be outside the PIP limit they choose? Will companies offer a managed Care option, (think PPO’s, HMO, etc.)? If they do, are they required to offer both managed Care & non-Managed Care? And what cost difference will there be? Questions about what “non-driving” rating factors will go away? {Speculating examples of what may not be used in the future: Groups (college education, Credit Union membership, etc.), Multi Policy discounts based on home ownership, credit rating, the number of prior owners of a vehicle, etc?}. These are all ‘Works in Progress” at DIFS and the carriers. We continue to discuss these issues with DIFS, the Carriers and other interested parties on behalf of our member agencies and the consumer.

We do suggest that you encourage your clients to continue to buy the highest amount of PIP, BI and UM/UIM they can afford. Since some people will choose lower limits of PIP, if they have a catastrophic claim and run out of their own coverage, we anticipate increased lawsuits for uncovered medical bills, lost wages, etc., as well as increased claims under UM/UIM.

This is a brief summary of some of the key changes affecting our agencies as best we have been able to understand at this point. It is not meant to be a legal document, but an ongoing discussion of how this new law will affect our businesses and our clients. Watch for continued updates as questions are answered, clarifications made and possible changes and challenges to the new law happen. Please discuss this with your carriers, they need to develop rates for the options to be included when they send the new forms out for clients to choose their options. Continue to ask them for updates on how their IT people are coming with these processes, we are concerned that if they do not have their systems ready, the burden will fall to our agencies, and it
is already going to be a very labor intensive time for us.

We are also working closely with the Insurance Alliance of Michigan (IAM) on identifying the primary priorities of action needed on legislation aimed at correcting SB1 and HB4397 that were signed into law. In our discussions with them, we voiced our primary concerns. One is the immediate rectifying of the amended order of priority that as of June 11, 2019 puts family
members that are listed as drivers but not in the household, subject to a reduced limit ($250,000) provided by the Michigan Assigned Claims Plan. This immediate reduction in coverage is something that changes the terms of the current policy contract and may or may not be allowable legally. We will update you as soon as we have more information if there is any
legislative action on this.

Another priority was to remove the requirement for a form to be signed at every renewal authorizing the limit of PIP and BI that a customer chooses. No other coverages are required to reauthorize at every renewal, and we believe this is no different. The work load would be so significant that many agencies (and companies) would struggle to keep up with the tracking and
monitoring of all forms and coverage options.

Other areas of concern revolved around how carriers new to Michigan would set pricing as they would not be subject to the rates that were in place in May of 2019. Also we are encouraging carriers to allow the agents to endorse the policy as opposed to a cancel re-write in July of 2020, this is at the company’s discretion. Endorsing is allowed per DIFS, this was a common question
they were getting. We are looking forward to an upcoming meeting with the Insurance Chair as soon as all parties are able to get a common date worked out.

We also encourage you to tell your legislators what your opinion is of the new law and how it impacts your clients & your business. In particular, please encourage them to fix some of the issues like the way it reads for a signed form every renewal for the BI limit. We may need you to get involved if there are any future legislative changes being discussed on the new law, it will
be very important that us agents reach out to our local representatives to influence any changes!
(ED: 8/12/19)

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