Which States Could Benefit From Auto Reform?

Which States Could Benefit From Auto Reform?

States that take after Michigan and revise their car insurance requirements could create slightly lower premiums for many drivers, but cheap car insurance depends on a host of other factors.

At the beginning of July, Michigan implemented new auto insurance laws in an effort to reduce the financial burden on policyholders while continuing to ensure its drivers' safety. These changes targeted the state's unlimited personal injury protection (PIP) requirement.

ValuePenguin found that drivers who have to purchase at least $250,000 of PIP under the new law — those with "qualified health coverage that is not Medicare" — could lower their full coverage premiums by 2%. Drivers who qualify for even lower requirements, such as those who are enrolled in Medicaid, could reduce their rates far more, by 15%.

In this study, we explore how similar rate reductions could affect rates in the country's other states where PIP is covered and examine what other factors could influence the high cost of car insurance.

Key findings

  • Dropping its unlimited personal injury protection (PIP) requirement to $250,000 could reduce premiums for many of Michigan's drivers by 2%, but car owners who qualify for even lower PIP could see their premiums reduced by nearly one-fourth depending on desired coverage level.
  • Drivers with $250,000 of PIP could save $174 per year on car insurance, while those with Medicaid could save more than $2,000 annually for full coverage.
  • Across the 16 states that require PIP, a 2% reduction in insurance premiums would stand to save drivers an average of $53 per year for full coverage.
  • Modest auto insurance reform could yield the most benefits for drivers in Minnesota, Massachusetts and Maine, where a 2% price reduction would improve the average cost of insurance relative to other states by one, two and three spots, respectively.

Modest revisions to Michigan's car insurance requirements could lead to savings of 2%, while drivers who qualify for lower limits could heavily reduce their premiums.

Michigan's auto rates were notoriously high for years. Before the start of July, it was the only state that required its drivers to purchase unlimited personal injury protection (PIP) — used to cover the cost of medical injuries sustained in an accident, regardless of who's at fault. This led car insurance to be comparable much more expensive than the rest of the nation, at more than $8,000 for full coverage.

Now, Michigan has relaxed its requirements. It remains a no-fault state, meaning its drivers still have to purchase PIP. But depending on the policyholder's health insurance, they will be able to reduce their mandatory PIP coverage and lower the overall cost of their policies.

Many drivers will have to buy $250,000 of PIP under the new law. This moderate change is still the highest PIP requirement of any state in the country. While the state's government identified cost savings as a motivator for the revised law, this change could lower premiums for many by only 2%, or about $174 per year for full coverage or $106 for a policy that satisfies the state's minimum liability laws.

Those drivers who have Medicaid may be able to qualify for much less stringent requirements — a PIP prerequisite of $50,000. Compared to other states, this number remains very high, but it's more reflective of normal PIP laws than either the unlimited or $250,000 options.

Drivers with $50,000 of PIP could save $792 per year on a minimum coverage policy and $2,094 on full coverage — reductions of 15% and 24%, respectively. In any case, Michigan's average cost of car insurance remains the highest in the country: A 24% reduction results in a cost of $6,600 for full coverage, while a minimum coverage policy would cost $4,400.

However, despite the high rates in the Great Lakes State, car owners could have more luck finding cheaper coverage by comparing rates from all of the state's largest companies. For example, a 2% price reduction means that Auto-Owners Insurance could cost $1,455 for minimum coverage, while $3,075 might get drivers full coverage. These rates are much more manageable for typical drivers' expenses.

Other states with PIP requirements could slightly benefit from revisiting their own laws: A 2% decrease in insurance prices could save residents an average of $53 per year.

Including Michigan, there are 16 states that require drivers to carry PIP coverage. Although most of these states don't rank near the top of the nation's most expensive states for car insurance, their drivers may still see somewhat lower fees from new regulations.

A 2% reduction mirroring Michigan's would save drivers in no-fault states $53 per year, on average. However depending on the state, the savings could be greater. In Florida and New York, for example, drivers could save $67 and $55, respectively.

Although Floridians could save $67 per year from a small reduction in PIP requirements, the Sunshine State's unique lack of bodily injury coverage means other changes would have to be made in conjunction with PIP reform to protect its drivers.

For the most part, a 2% reduction to auto insurance premiums doesn't result in substantial savings to drivers looking for full coverage or minimum coverage. In fact, drivers who want to satisfy their state's liability laws will only save about $25 per year on average as a result of modest PIP reconsiderations that resemble Michigan's.

Still, the effects of law reform are most visible in Minnesota, Massachusetts and Maine. In these states, a 2% reduction of auto insurance premiums lowers average costs enough that Maine becomes the fourth-cheapest state for minimum coverage in the country, while Massachusetts and Minnesota improve two spots and one spot in rankings.

While changes to PIP legislation result in lower rates, only four of the 10 most expensive states for car insurance require any personal injury protection. For other states, other factors are more likely to influence prices.

While PIP mandates do increase prices, they aren't the only reasons why a state might have a high average cost of insurance. In fact, they might not be contributing factors at all. Less than half of the 10 most expensive states for car insurance have mandatory PIP rulings.

External factors such as health insurance costs, the number of deadly crashes in a state and, especially, the number of uninsured drivers can drive up the cost of insurance for all car owners — even good drivers.

For example, Louisiana and Kentucky, neither of which are no-fault states, have high rates due in part to the prevalence of fatal crashes on their roads. According to the Insurance Institute for Highway Safety (IIHS), both states rank in the top six for deaths per miles driven. Similarly, this metric combines Louisiana's high cost of health insurance and contributes to its expensive rates for drivers.

While PIP laws do increase rates, the interconnectivity of these factors means that it may be difficult to reduce rates heavily in states where multiple price-increasing elements are present if reform only targets rules for high minimum levels of insurance.

Methodology

We used rates from Quadrant to analyze how Michigan's new PIP rules caused the price of insurance to decrease. Once we established a reasonable rate of change, we applied the model to other states that require its drivers to carry PIP.

ValuePenguin's analysis used insurance rate data from Quadrant Information Services. These rates were publicly sourced from insurer filings and should be used for comparative purposes only — your own quotes may be different.

Andrew Hurst

Andrew Hurst is a Data Writer at ValuePenguin who writes about insurance. His analysis has been featured in Forbes, MSN and USA News, among others. He's also appeared in interviews broadcast by ABC and the CW. He previously taught composition and research at Wright State University.

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