The Auto No-Fault Law Blog

As the auto no-fault insurance debate gets hotter in Lansing, Michigan, citizens are being told that reform legislation was needed because the auto no-fault insurance system, is in its current form, “not sustainable.” In other words, Michigan insurance companies are predicting that future costs will rise so rapidly that auto no-fault insurance premiums will be unaffordable. Therefore, we need to dramatically change the system.

It is interesting that the insurance industry made these same arguments in 1992 and 1994, when Michigan voters resoundingly defeated two similar insurance industry proposals to change the Michigan no-fault law—Proposal D in 1992 and Proposal C in 1994.

Nevertheless, the insurance industry is back with the same old fear mongering. This time, their silver bullet cure is HB 4936, which the industry claims will bring insurance premiums down for Michigan citizens. The problem with that is that there is not one single word in this proposed legislation that requires insurance companies to lower premiums! That’s right—no guarantee of any premium reduction.

But what is even more frustrating is the fact that HB 4936 will actually create a need for many Michigan citizens to buy more insurance and pay more in insurance premiums than they do under the current system. This is so, because under this new law, all Michigan citizens will have personal tort liability for any unfunded medical expenses incurred by a victim, if the accident was caused by the negligence of the motorist. This cannot happen under our current law, because all victims enjoy lifetime full medical coverage for medical expenses. Therefore, under our current law, there is no unfunded medical expenses that become the liability of the motorist causing the accident. However, under the new law, if the accident victim purchased the “cheapo” $500,000 of minimum coverage and incurs medical expenses let’s say in the amount of $2,000,000, the motorist causing the accident will be liable for$1,500,000 of unfunded medical expenses incurred by the victim.

Therefore, in order for Michigan citizens to more adequately protect themselves, they will need to purchase substantially more liability insurance to cover this new liability risk. This is particularly true, because many drivers will buy the cheapest PIP medical coverage (i.e., $500,000), thereby substantially increasing the likelihood that in severe injury cases caused by the negligence of the other driver, there will be a huge liability exposure. So, the only way to protect yourself from such a risk in those situations where you might be the at-fault party is to go out and buy a whole lot of liability insurance coverage. Which, of course, will increase your insurance premium!

This problem is compounded further by the fact that HB 4936 does not increase the minimum liability insurance requirements that have, for many years, only required insurance companies to sell liability coverage in the amount of $20,000 per person/$40,000 per occurrence. Therefore, insurance companies could, theoretically, refuse to write liability insurance coverage in amounts that would be adequate to cover the new liability risk you will be facing if HB 4936 passes.

So what about the hype that passing HB 4936 will reduce insurance premiums?  It is simply more smoke in mirrors by Michigan auto insurance companies who want to pay less in benefits while increasing corporate profits. The harsh reality is that if you think this Bill will substantially decrease your insurance premiums, you will, in all probability, be very disappointed.