Michigan Senators Introduce Low-Cost Car Insurance Proposal

Lower-income motorists with clean Michigan driving records may get expanded choices for auto insurance coverage if legislation introduced by two state senators on Wednesday makes its way into law.

The bill, introduced by Sens. Virgil Smith and Joe Hune, would establish a pilot program for Wayne County drivers that would provide reduced coverage for reduced rates to eligible applicants.

This could provide much needed relief to residents of Detroit, which is located in Wayne County and has been said to have the highest premiums in the nation. According to the Insurance Information Institute (III), the average annual premium for a 100/300/50 liability policy with collision, comprehensive and uninsured motorist coverage in Detroit last year was nearly $6,000. That’s about 56 percent more than the average rate in New Orleans, the next most expensive city.

Participants in the program would get standard, state-required residual liability coverage, but would have limited amounts of Personal Injury Protection (PIP) — the no-fault coverage type that pays for medical damages incurred by policyholders, their household family members and passengers.

Motorists in the program would choose to have either a $50,000 or a $100,000 limit on PIP benefits.

Sen. Smith told the Detroit Free Press earlier this month that he hopes policies issued through the program would come in at less than $1,000 per vehicle annually.

Access to the program would be limited

Similar to the low-income program already in place in California, the Michigan plan would be open only to lower-income drivers who are at least 21 years old, have relatively clean driving records and drive cars that are worth less than $20,000. Eligible applicants must also have been consecutively licensed for at least three years.

Currently, the legislation requires that eligibility be based on the applicant’s household income level. That level would have to be at or below 300 percent of the federal poverty line.

So an eligible one-person household would have to make less than $32,671, according to numbers provided by the U.S. Department of Health and Human Services. For each additional household member, the limit would be increased by $11,460.

Senators’ proposal highlights catastrophic-claims issue

The cap on PIP benefits would be a key part of cutting premiums for participants in the program. Michigan car insurance law has for decades required that insurers provide unlimited medical benefits through PIP, which has been a huge factor in the state’s having such high average rates.

In contrast, the required minimum limit for no-fault coverage in Florida is only $10,000; in New York, it is $50,000; in New Jersey, it is $15,000. No other state in the nation requires insurers to cover all medical bills that are the result of an accident.

As a result, the size of the average PIP claim in Michigan is exceedingly high. In the third quarter of 2010, according to the III, the average no-fault claim in the state was larger than the average for the next three highest state averages combined.

In order to provide at least some relief to MI auto insurance companies, the state has set up the Michigan Catastrophic Claims Association. The association pools funds together collected through an approximately $140 fee charged for each auto in the state. Those funds then go toward reimbursing insurers who have to pay out claims that total more than $480,000 each.

The $50,000 or $100,000 limit would significantly reduce the exposure to the state’s insurers, a fact that Smith and Hune hope will improve its chances of being signed into law.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

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