Michigan drivers pay the highest automobile insurance rates in the country and have maintained a top 5 ranking for the past decade. This is not a secret; it’s difficult to pick up a newspaper or to turn on the news without hearing politicians and insurance industry professionals commenting on this sorry state of affairs and bemoaning what can only be called a mess.
Although every driver in Michigan is required to buy auto insurance, it is estimated that 1 out of every 5 cars on the road is without insurance because of the costs. In Detroit, it is estimated over half of drivers can’t afford car insurance.
Reform is desperately needed and Detroit is where it must begin. There is only one reason Detroit has an epic auto insurance crisis — Michigan’s no-fault system, which provides for unlimited Personal Injury Protection (PIP) coverage. There are only 12 states in the country that have no-fault PIP coverage, and Michigan is the only one with no cap on the amount an auto insurance company must pay for an injured party’s medical bills. To put this into perspective, Pennsylvania’s no-fault PIP system has a $5,000 cap; Massachusetts’ cap is $8,000.
A PIP cap does not preclude injured parties from receiving proper medical care or force them to pay for the care themselves. It merely shifts a portion of the cost from auto insurers to either the injured party’s health insurance, the negligent driver who caused the accident, Medicaid, or other jointly funded programs.
There is no complex equation here. It is as simple as this: Michigan’s laws allow virtually any amount to be charged to auto insurers by health care providers for injured party medical care. This leaves auto insurers with no choice but to charge every driver premiums that are simply unaffordable to many Detroit drivers.
But there is hope. Other states have already faced this same debacle and, despite dire predictions from many who have a vested interest in maintaining the status quo, they have reduced consumer rates, increased compliance with mandatory insurance laws, and attracted more insurance companies into the market — bringing competition that has further driven down rates.
I know this from experience. In the late 1980s, New Jersey faced virtually the same situation as Michigan. Because of a no-fault system without a cap, national auto insurance companies refused to write business in New Jersey and others filed plans to abandon the state. Premiums were the highest in the nation and, despite a law requiring drivers to purchase auto insurance, we had an uninsured motorist rate that rivaled Michigan’s today.
In 1990, New Jersey adopted a PIP cap of $250,000 (with an option as low as $15,000), limited rates that health care providers could charge for procedures, and created a process to ensure treatment was necessary. Twenty-five years later, New Jersey has dropped to having the 10th highest rates in the country, is populated with auto insurers advertising for business, and has reduced its uninsured population by 40 percent.
Michigan currently has a plan in front of the state legislature proposing changes that would lower premiums in Detroit. D-Insurance would allow insurance companies to offer drivers an additional PIP coverage option. Drivers could choose to keep the unlimited PIP coverage or select a $25,000 PIP limit (with an additional $250,000 for necessary critical care). Passing this law could reduce average auto insurance rates in Detroit by up to 40 percent.
Many insurance companies — mine included — are waiting on the sideline to see what the Michigan legislature will do. Help fuel Detroit’s comeback. Urge your legislator to support D-Insurance.
Eric S. Poe is chief operating officer of CURE Auto Insurance.