(Kyle Zwiren welcomes guest columnist Marty O'Neill.)
Buried on the back pages of the news, for now, is the story of auto insurance reform. As the July 1, 2020 reform date approaches, I am starting to field questions about what it means and what the cost model might look like.
As of the publication date of this paper, I have very little information regarding the latter. How each company will account for the mandated rating laws, while coordinating said changes with their own actuarial tables is still yet to be seen.
What I do know is since last year's announcement of auto insurance reform, I have played out how the change will take place in my mind several times. Each time three major areas of concern keep surfacing:
1. In an effort to race to the bottom price will shoppers reduce, or completely overlook, important coverage?
2. Will the Personal Injury Protection (PIP) options entice people to carry low coverage in order to save on premium?
3. Will my counterparts in the insurance sales arena be tempted to cut coverage in order to retain customers during this open season for insurance shopping?
Let's talk about each of these in order.
First, as it stands today with do-it-yourself insurance websites, I already see some dangerous coverage combinations. Recently I met with a husband and wife, both doctors. She has a successful private practice; he's on staff at a major hospital. He also dabbled in planning vacations on travel sites, managing their investments on a discount trading site, oh, and doing insurance on-line. I cannot comment on his prowess with the others, but I certainly hope he's a better doctor than an insurance professional.
Both their cars had 20/40 coverage for liability, the lowest option in the state. They also did not have uninsured or underinsured coverage, nor an umbrella policy.
In short, they were risking everything. In the event of an auto accident their entire fortune would have been completely exposed to litigation. My concern is, like the good doctor, others will use the reform as a chance to try to save themselves money and by not understanding coverage options there could be massive exposure to financial ruin.
My second concern relates to Personal Injury Protection, or PIP. Today we all buy unlimited PIP coverage, like it or not. People injured in auto accidents then have unlimited funds for their injuries and in the worse cases, their long-term care. It's the best coverage in the country and thus, the most expensive.
Reform will offer the consumer options for PIP coverage, likely ranging from $50,000 to unlimited coverage. As with my previous concern, I fear that the lure of savings may prompt people to make a short-term financial decision that could have adverse effects in the future.
We all know that a high percentage of bankruptcies are rooted in medical expenses. Sadly, I think that number will only rise as optional PIP coverage rolls out. It will be important for consumers to understand their options and select coverage not only based on price, but a policy that would truly offer the coverage needed in the event of a catastrophic event.
My final concern points the finger at me and my insurance professional colleges. This is likely to be a challenging summer with lots of market movement. It is my hope that my industry answers the bell with the correct coverage advice being given, in all circumstances.
There may be temptation for agencies and their agents to manipulate coverage to make the bottom-line premium look good and thus salvage a customer who may be shopping elsewhere.
I think sound advice for consumers is to get multiple quotes and ask questions specific to medical coverage, liability, uninsured/underinsured driver coverage and deductibles. It will be important to know what coverage is in force and not just what the monthly billing statement says.
This change has been coming for a long time. The previous insurance model in Michigan, in my opinion, was unsustainable and changes had to be made. It will be an exciting and challenging time in the insurance industry and those who work with client-focused insurance professionals will see the best benefits of auto insurance reform.
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Marty O'Neill is an Agency Owner with Goosehead Insurance in Bloomfield Hills. He has more than 15 years of personal-line insurance agency ownership experience and is recognized as an authority in his industry.
Attorney Kyle Zwiren works with Financial Architects Inc., an independently-owned company located in Farmington Hills. Zwiren and his team serve attorneys and other professionals to help them design financial plans in line with their goals and based on optimal efficiency. He practiced law prior to becoming a Financial Architect and left the practice to follow his passion. To talk to Zwiren about other topics featured in The Economic Blueprint, email him at kzwiren@financialarch.com or call him at 248-482-3622.
Published: Fri, Apr 24, 2020
