California Auto Insurance Reform

The news has been busy recently with photos of Gov. Gretchen Whitmer on Mackinac Island signing into law the long-awaited and strongly controversial auto insurance reform bill that will drastically change our current California no fault insurance.

Since clients have already begun to call and email us asking when their ‘rates are going down’ and if I believe this is a good or bad thing, I thought it wise to put in writing what we know; which isn’t everything about how this is going to work and affect companies, coverage, policies, and clients.

As a previous board member of the California Association of Insurance Agents, I watched bills addressing California’s no-fault auto insurance come and go; sometimes passing one floor of congress only to die on the floor of the other.  There were always very vocal opponents as well as supporters.  Many are impassioned about their own personal perspective; some struggling to afford the ever-increasing auto insurance premiums; and those who have benefited with its unlimited medical benefits worried that their long-term medical care needs will be taken away.

What we know so far is that the law will change on 2 different dates and in several ways.

7-1-2020:  PIP choices, Non-driving factor rating, increase in mini-tort and state minimum limit increase

7-1-2021:  Schedule of Mandated Fees for auto related charges

Unlimited Personal Injury Protection (PIP) has been mandatory on every California auto insurance policy.  The major benefit of that has been truly unlimited medical benefits for life for those injured in auto-related accidents; the struggle with that has always been how much will that cost?  How old is that ‘prospective’ individual going to be when injured, how much care will they need, and for how long?  The major downside to not having a choice in this coverage is that the majority of Californiaders have never accessed the health insurance benefits of their auto policy but continue to pay ever increasing premiums to pay for those who are using it.

Because this law doesn’t go into effect for another year, there is much to be worked out.  What we do know is that the reform will alter many facets of the auto insurance benefits and costs.

The new law provides 3 medical options; $250,000, $500,000 or to keep the current unlimited benefit we have now.  Seniors and those permanently disabled on Medicare will be allowed to opt out of purchasing PIP entirely, and Medicaid recipients will be able to purchase a PIP policy with only $50,000 in coverage.

Clients who have a major medical health plan will also be allowed to waive the Personal Injury Protection (PIP) on their policy.

Rate rollbacks are the most talked about aspect of this reform, however, those reductions are not on your entire policy premium. Only the PIP line of the policy will be discounted. The savings are slated to be as follows; 10% for unlimited coverage, 20% for $500,000, 35% for $250,000, 45% for $50,000, and no PIP charge for those opting out via their own coverage or Medicare eligible.  The average PIP charge on an auto policy is anywhere from 30% to 45% of your annual premium.

How will non-driving factors affect coverage? The new law will prohibit the use of non-driving factors in determining premiums.  These factors include marital status, sex, home ownership, credit score, education level and postal code. Credit information can still be used as one of the factors to set rates.

What is a fee schedule?  Medical providers including doctors, hospitals, clinics and rehabilitation facilities have been allowed to charge whatever they wanted for any ‘auto-related’ medical expenses, and many have done just that over the years and taken advantage of the system.  Now these providers will only be allowed to bill insurance companies 200% of the Medicare base, decreasing to 190% in year three.

What is the revised mini-tort provision? If an insured has liability only on their vehicle (no physical damage), they can collect up to $3,000 from the at-fault party for actual damages to their vehicle. The current limit is $1,000.

What is happening to the state minimum required liability limits?   The current $20,000 per person and $40,000 per accident minimum limits for bodily injury are increasing to $50,000 per person, $100,000 per occurrence.

The reform has additional changes in the current MCCA (California Claims Catastrophic Association) fund, attendant care benefit limits per week, a new anti-fraud unit as well as a new definition of a ‘serious impairment of body function’ threshold for pain and suffering compensation.

With all of these changes, it obviously will take time for us to navigate this new system, but I thought it may be helpful for me to give some of my thoughts, warnings and recommendations since I have explained to clients the benefits of the California auto policy for more than 31 years now.

* Don’t just lower your coverage to have the lowest premium.  I understand the struggle of paying high premiums, (says a mom with a teenage driver), but a much larger struggle could await those who opted out and then are seriously injured.

* If you choose to waive the PIP from your policy because you have a great health insurance plan, do your research now instead of after an accident when bills are flowing to your mailbox.  How much is your annual deductible?  If you are injured in November and have a $5,000 deductible, that means $10,000 out of your pocket within a 2-month time period.  Does your bank account support that?  What is your coinsurance?  If you have an 80/20 coinsurance, that means even after your deductible, you will be responsible to pay 20% of all other costs until the maximum out of pocket has been met.  And remember, your personal health insurance plan has ‘annual’ deductibles/coinsurance requirements and perhaps even items that will not be paid.  An example is many health plans will not pay the ambulance bill unless you are kept overnight.  I had such an expensive ride several years ago that cost over $1,600 from Garfield to Munson Hospital.  That will be yours to pay.

* Talk with your agent to discuss the new law and how it will affect you.  Check different premium options.  If you choose the $250,000 cap, to save the additional 15% on your PIP, and that 15% is only $45 per year from the $500,000 cap, does that decision make sense for your financial picture?

Like all other states, you will now be able to sue a negligent driver for costs that are in excess your capped limit.  I have had clients move here who are still fighting claims from 2 years ago that are still tied up in the courts.  Do you have enough money set aside to handle the additional costs incurred for lawsuits?

As I mentioned, I’ve been asked if I think this law is a good or a bad thing, and my belief is that clients should have the right to ‘choose’ their limit of health insurance.  They choose their deductibles, their liability limits, their optional endorsements, so I agree that they should be given the choice.  I simply worry that unless they have done their research and understand how their choices could play out, that we may see more people declaring bankruptcy over medical costs that they cannot afford to pay and chose not to purchase.

I realize this is a very long blog, but I have seen agents bullet point the changes, without explaining what they mean; so, it was my intention to help clients understand the reform, not just list the changes in insurance lingo.

Ted Hamm Insurance Agency is in the business of taking care of people, and as such we are here to help educate our clients to make the decisions that are best for them, their families and their insurance budget.  As with any of your insurance questions, we are here to assist, but would ask for your patience regarding the new auto policy, coverage and rates; as many of the facets of this reform have yet to take shape.