How Insurance Works in Michigan

Both private and public insurance companies sell different insurance products to Michigan residents. Generally, insurance companies sell insurance products to customers by guaranteeing payments for covered risks in exchange for a certain amount of money, known as premiums. Insureds are expected to pay premiums monthly, quarterly, annually, or biannually, depending on their agreements with their insurers. Government-sponsored insurance programs in Michigan include Medicaid (the state and the federal government jointly sponsor this), Medicare, Healthy Michigan Plan, MIChild, and Healthy Kids. The government sponsors insurance programs mainly through payroll taxes and revenues from other government investments. Subscribers to these insurance programs also pay government-subsidized premiums. Private insurance companies rely heavily on the premiums that policyholders pay, but they also make money by investing the premiums and through re-insurance and lapsed coverages. The premiums that private insurers pay can be low or high, depending on the coverage type, coverage limit, and other factors.

The Department of Insurance and Financial Services (DIFS) oversees and regulates the insurance industry in Michigan. In 2022, there were 26 Health Maintenance Organizations (HMOs), 139 local insurance companies, 1,447 insurance companies from out-of-state, over 224 thousand insurance agents, and 18,239 insurance agencies in Michigan.

HEALTH INSURANCE

Health insurance is an insurance product that helps cover the cost of health-related cases such as hospital visits, surgeries, and prescription drugs. In 2019, about 5.8% of Michigan’s population was without health insurance. However, there was a slight decrease in the number of Michigan residents without health plans in 2020; 5.4% of all 10,077,331 Michigan residents (over 544,000 residents) were without health insurance. In 2021, people under age 65 and without health insurance were 6.4% of the total population of 10,050,811 residents.

Health insurance plans in Michigan can be ACA-compliant or non-ACA-compliant.

ACA Compliant Coverage

According to the Affordable Care Act (ACA), a comprehensive health plan must cover essential health benefits, which are:

• Ambulatory services
• Emergency services
• Hospitalization
• Maternity and newborn care
• Prescription drugs
• Laboratory services
• Mental health and substance use disorder services, including behavioral health treatment
• Rehabilitative and habilitative services and devices
• Preventive and wellness services and chronic disease management
• Pediatric services, including oral and vision care

In addition, the Michigan law requires health insurance policies in the state to cover the healthcare costs for:

• Autism spectrum disorders (ASD)
• Hospice care
• Mastectomy
• Off-label use of approved drugs

Any health plan that the Health Insurance Marketplace and the Department of Insurance and Financial Services certify is considered a Qualified Health Plan and must adhere to cost-sharing and ACA requirements. Qualified Health Insurance Plans are in five metal levels:

• Platinum Level: These health plans cover 90% of the incurred health care cost while the insured pays the remaining 10%
• Gold Level: The plans cover 80% of the total health care cost for the insured while the insured covers the remaining 20% out of pocket
• Silver Level: These health plans cover 70% of the health care cost, while the insured covers 30% of the cost
• Bronze Level: Health plans under Bronze Level will cover 60% of the insured’s incurred health care cost while the insured covers the remaining 40%
• Expanded Bronze Level: These health plans here cover between 56% and 62% of the total health care cost, and the insured covers the remaining

In Michigan, there are also Catastrophic Health Plans for people under 30 years old or people of any age due to certain hardship exemptions. Catastrophic health plans also cover essential health benefits. However, they have lower premiums but higher deductibles and are not eligible for federal tax credits.

Uninsured Michigan residents can purchase ACA-compliant health insurance plans during the open enrollment period on the federally-ran HealthCare.gov Marketplace between November 1, and January 15, of the following year. Buying health insurance during the annual open enrollment period comes with some benefits:

• Advanced premium tax credit, which reduces the monthly cost of any health plan purchased on the Marketplace. This is for people who fall between 100 and 400% federal poverty level.
• Cost-sharing reduction: It reduces the out-of-pocket costs for health plans purchased on the Marketplace. Eligible persons fall between 100% and 250% federal poverty level.

Outside the open enrollment period, individuals may be eligible to purchase health insurance during a special enrollment period. The eligibility for the special enrollment period is based on having experienced a life-changing event, such as having a child, getting married, or changing household income. Also, anyone eligible for Medicaid can purchase health insurance in Michigan anytime.

In Michigan, employers with 50 or more employees must provide health insurance coverage for their employees and dependents. This is a group health plan, which is by default ACA-compliant. Employers who do not have up to 50 employees are not mandated to offer their employees any health insurance plan but must provide them with information about the Marketplace. These persons can purchase their individual health insurance plans on the Marketplace or approach other health insurance companies to buy a health plan.

Non-ACA-Compliant Coverage

Besides the standard ACA-compliant health insurance coverage, Michigan allows the sale of short term health insurance. Residents of Michigan can purchase a short term health insurance plan for a maximum duration of 185 days from an insurer in a year. They cannot renew their short term plan with the same insurer when it lapses but they can purchase another short term plan from another insurer.

Short term health insurance plans are not mandated by law to cover pre-existing health conditions. Therefore, insurers who sell them may deny the applications of people with preexisting conditions. This is unlike ACA-compliant health insurance plans, where insurers cannot deny people coverage because of their pre-existing health conditions. If the insurers cover pre-existing conditions, they may use the identified health conditions to increase the cost of short term health plans.

To be eligible for short term health plans in Michigan, you have to meet the underwriting requirements of your insurer. Some insurers even state that the insured must be under 65 years of age. You may consider purchasing a short term insurance plan if:

• You are healthy and want to save money
• You are not eligible for Medicaid
• You will soon qualify for Medicare and you do not have any health insurance plan covering you at the moment. A short term health plan will cover the gap for you for the period
• You missed the open enrollment period for an ACA-compliant health plan and you do not qualify to enroll during the special enrollment period

To get health insurance coverage, discuss your health insurance needs with a Michigan-licensed health insurance agent who has access to multiple insurers on and off the ACA-compliant Marketplace.

AUTO INSURANCE

Auto insurance provides financial protection to car owners and their insured relatives in the event of a loss or accident involving their automobiles or another person’s car. When a driver carries auto insurance, their insurer will take up the financial responsibility of fixing or replacing their car if it is involved in an accident or stolen. If an auto accident leads to bodily injury, auto insurance will cover the medical expenses. In 2020, 8,453,239 motor vehicles (both private, commercial, and publicly owned) were registered in Michigan. Also, in 2020, over 7.2 million drivers were licensed in Michigan. In 2013, about 1 million residents out of the driving age population (7,922,631 residents) were not licensed. In 2019, the percentage of uninsured drivers in Michigan stood at 25.5%, ranking second behind Mississippi (29.4%) among the states with uninsured motorists. According to the Center for Disease Control and Prevention (CDC), in 2018, about 1,000 people were killed in motor vehicle accidents in Michigan. The total cost of auto crash deaths was $1.36 billion ($12 million for medical expenses and $1.35 billion in work loss costs).

Michigan is a no-fault state. This means that the auto insurance plan of any driver involved in an auto accident will cover the cost of fixing the car or treating the car owner and their passenger(s) if they sustain any injury, regardless of who caused the accident. Driving any vehicle in Michigan without an active auto policy is illegal. As such, driving without auto insurance in the state is considered a misdemeanor, and it attracts a fine of up to $500 and/or up to a year in jail. In addition to the fine, the court may order the Michigan Secretary of State to suspend the driving license of the uninsured driver for 30 days or until they can present proof of insurance.

A valid auto insurance policy in Michigan must have the following coverages:

• Personal Injury Protection (PIP)

  This covers all the medical expenses of the insured or their passenger(s) if they sustain any injury in an auto crash, up to the maximum limit of their policy’s coverage. It also covers wage loss and replacement services for up to three years post the accident date. There are five benefit limit options from which policyholders may make a choice:

• Unlimited coverage

• $500,000 per person per accident

• $250,000 per person per accident

• $250,000 per person per accident with exclusion (An individual whose resident relative or spouse has qualified health coverage that is not Medicaid is eligible for this option)

• $50,000 per person per accident (To qualify for this, you must have enrolled for Medicaid. Your spouse and all resident relatives must also have qualified health insurance and be enrolled in Medicaid. An individual can also choose this option if their spouse or resident relatives have another auto insurance with PIP coverage)

• Property Protection Insurance (PPI)

  This covers the cost of repairing any damage an insured car causes to another person’s property (e.g., buildings, fences, well-parked cars). The maximum coverage limit is $1 million.

• Residual Bodily Injury and Property Damage Liability (BI & PD)

  This covers liability claims resulting from bodily injury, death, or property damage to another person’s property if the insured is legally found responsible for the accident. It kicks in if the affected person does not have enough coverage to cover their expenses. The state-required coverage limit options are:

• Up to $250,000 for a person injured or killed in an accident

• Up to $500,000 for each accident if more than one person is injured or killed in an accident

• Up to $10,000 for property damage outside Michigan

  It is possible for an insured to increase and reduce the BI/PD coverage as needed, but the options cannot be lower than as follows:

• $50,000 for a person injured or killed in an accident

• $100,000 for an accident if more than one person is injured or killed in the accident

• $10,000 for property damage outside Michigan

Categories of auto insurance are:

1. Collision insurance
2. Comprehensive auto insurance
3. Uninsured Motorist / Underinsured Motorist Insurance
4. Non-Owner Auto insurance
5. Parked Car insurance
6. Gap insurance
7. Temporary auto insurance

Other additional and optional auto coverages include:

• Roadside assistance coverage
• Accident forgiveness coverage
• Rental reimbursement coverage
• Rideshare insurance
• New car replacement insurance
• Medical payment coverage

Auto insurance can be categorized into two, based on the vehicle’s use; commercial or private (personal). Commercial auto insurance covers vehicles that are used to convey staff or work equipment, for delivery, and other business purposes. Commercial auto insurance covers employees who are authorized to drive company-owned vehicles. Private or personal auto insurance covers vehicles used for private commuting and not for business purposes. Therefore, personal auto insurance will not cover any accident that occurs when a private car is being used for business-related activity.

Speak with a state-licensed and knowledgeable insurance agent who sells auto insurance in Michigan about your auto insurance needs. Knowledgeable agents can guide you through the process of choosing the appropriate auto insurance policy.

RESIDENTIAL PROPERTY INSURANCE

Residential property insurance protects homeowners, renters, landlords, and condo dwellers against financial losses due to covered unforeseen circumstances like burglary, slip-and-fall, or bad weather (e.g., windstorm, hail, and wildfire). Residential property insurance policies include homeowners, condo, landlord, and renters insurance. In 2022, about 4.6 million housing units were in Michigan, out of which about 3.3 million units were occupied by the owners, while the remaining 1.3 million units were rentals. Homeowners insurance covers the housing units occupied by the owners, including the properties in the buildings, while renters insurance covers the tenants' personal belongings.

Although Michigan law does not mandate homeowners or tenants to purchase residential property insurance, having it protects them against property damage, loss, and liability claims. Furthermore, a mortgage lender may require a homeowner to have homeowners insurance if their house is being financed. A landlord may also require a renter to have renters insurance.

Homeowners can get homeowners insurance individually or as groups through associations they belong to. Anyone who cannot get homeowners or renters coverage from a private insurance company that sells residential property insurance in Michigan can get it through the Michigan Basic Property Insurance Association (MBPIA).

In Michigan, residential insurance comprises:

• Homeowners insurance
• Condo insurance
• Landlord insurance
• Renters insurance
• Mobile/manufactured home insurance

To get residential property insurance in Michigan, consult with a knowledgeable licensed property insurance agent to discuss your residential property insurance needs.

COMMERCIAL INSURANCE

Commercial insurance, also known as business insurance, protects businesses and business owners against financial losses caused by bodily injuries to workers, customers, or third parties, theft, property damage, and liability claims. Commercial insurance can be broadly categorized into four types:

Although Michigan law does not require business owners to carry business insurance, employers with employees who work for 35 hours or more for 13 weeks or more must provide worker’s compensation for their employees. Also, business owners in Michigan that use commercial vehicles are required to have commercial auto insurance because it is illegal to drive in the state without auto insurance.

In 2022, over 2.6 million business entities in Michigan employed around 4 million state residents. All these businesses need commercial insurance, based on what the business does, what it owns, and how it is staffed. The commonly purchased commercial insurance are:

• Worker’s Compensation Insurance
• General Liability Insurance
• Commercial Auto Insurance
• Commercial Property Insurance
• Product Liability Insurance
• Professional Liability Insurance
• Home-based Business Insurance
• Business Owners’ Insurance

Speak with a knowledgeable Michigan-licensed commercial insurance agent about your business insurance needs. They can help you shop for policies that meet your needs and help you choose the one that perfectly fits your business.

LIFE INSURANCE

Life insurance provides financial protection for an insured's named beneficiaries after the insured dies. The death benefit of the policy can be used to cover funeral expenses or settle some other expenses, such as student loans or any debt left by the insured. There are two major types of life insurance:

• Term Life Insurance - also known as Temporary life insurance
• Permanent Life Insurance - also known as Cash Value (CV) life insurance

Term Life Insurance covers the insured for a particular period, usually ranging from 5 to 30 years. The insured’s named beneficiary will collect the policy’s death benefits if the insured dies within the policy’s term. In contrast, Permanent Life Insurance (Whole Life Insurance, Universal Life, and Variable Life) covers the policyholder until they die or stop paying premiums. After the insured dies, the insurer will pay the death benefit to the policy’s named beneficiaries. The named beneficiaries can use this payout to cover funeral expenses, debts, and other personal expenses.

The key difference between the life insurance types is that Term Life is usually meant as the cheapest way to leave money behind after the death of the insured. Meanwhile, cash value life insurance offers multiple uses of the policy while the insured is alive, plus pays the death benefit after death. Term life insures life while cash value policy is a financial tool that works for the insured all their life.

There are life insurance plans for Michigan’s state employees, and the government pays for such plans, but the employees must pay for the riders. Other residents who are not government employees can purchase life insurance plans that suit their needs from any licensed insurance companies that sell life insurance in Michigan.

To get life insurance in Michigan, speak with a state-licensed life insurance agent who can assess your needs and help you decide on the type of coverage that fits those needs. Always compare multiple insurers and ask a lot of questions.

DISASTER INSURANCE

Disaster insurance protects residential and commercial properties from natural and man-made disasters that standard residential and commercial property insurance policies do not cover. Residential and commercial property insurance does not cover financial burdens caused by floods and earthquakes. These disasters are covered by specific disaster insurance policies, flood insurance, and earthquake insurance, and they are collectively called disaster insurance.

On average, Michigan experiences 15 tornadoes per year. According to the 2019 report on Michigan Hazard Analysis, about 6% of the land in Michigan and 200,000 buildings in the state are prone to flood. According to the same report, Michigan is estimated to lose over $100 million yearly due to floods, $19.6 million due to tornadoes, $16.6 million due to hail, and $3.3 million due to snowstorms. Therefore, Michigan residents are commonly advised to purchase relevant disaster insurance.

Before purchasing disaster insurance in Michigan, discuss your needs with a knowledgeable state-licensed disaster insurance agent. They can help you choose the appropriate disaster insurance policy that fits your needs based on your location in the state.

How Does Michigan Insurance Work?

Insurance in Michigan provides financial protection to residents, their properties, and their businesses against losses they may incur due to property damage, theft, death, and liability claims from other people. In the event of the covered peril, an insurance company bears the incurred expenses because of the premiums the insured pays monthly, biannually, or yearly. When a covered risk occurs, the insured will file a claim for their insurer to cover the incurred cost. Then, the insurer will investigate the event and cover the cost if the claim is accepted. Insurers draw from the pool of premiums they have collected from their various policyholders to pay those who file claims. Insurers can pay many of the claims they receive because the number of claims they receive is typically smaller than the number of policyholders they have, and not all the claims that are filed are accepted. Insurance companies also invest their unused premiums in investment ventures, like the money market, to make more money. Insurers offering coverage in Michigan on average collect over $20 billion in premiums every year.

What is an Insurance Claim?

An insurance claim is a formal request an insured sends to their insurer when a covered risk occurs for compensation for the incurred losses. When a covered peril occurs, the policyholder has to file a claim to inform the insured of the occurrence. The claim must contain detailed information about the occurrence of the covered peril, the evidence of the event, and an estimate of the cost of fixing the incurred damage. Upon receipt of the claim, the insurer will investigate the case by assigning the claim to an adjuster. Based on the observation and conclusion of the adjuster, the claim may be accepted, modified, or denied. If a claim is accepted or modified, the insurance company will pay the insured the stated or adjusted amount.

Consult with a knowledgeable Michigan-licensed insurance agent if you need to file an insurance claim. They will guide you through the claims process and will help you avoid the common pitfalls.

What is the Cost of Insurance?

The insurance cost is the money that a policyholder pays to their insurer to transfer financial risks caused by theft, damage, or liability claims to the insurer. This is called premiums and can be paid monthly, quarterly, biannually, or yearly, depending on the agreement between the policyholder and the insurance company. Although the Department of Insurance and Financial Services (DIFS) coordinates insurance companies in Michigan, insurance companies set their premiums by using different factors. Factors that insurance companies often use to determine the cost of insurance include:

• Coverage type
• Coverage limit
• Age of the policyholder or what the policyholder wants to insure
• Location
• Riders attached to the policy
• Deductibles

To get accurate costs of different insurance policies in Michigan, speak with a state-licensed insurance agent. Insurance agents have access to many insurers. Independent insurance agents can help you get quotes from different insurers, but captive agents can only tell the quotes of the insurer they represent.

How Can Insurance Companies Afford to Pay Out Claims?

There are different ways through which insurance companies in Michigan make money that allows them to be able to pay out claims. These companies can afford to pay out claims through the following means.

• Underwriting Income: Underwriting is the act of evaluating risks and estimating the cost of covering such risks. Insurance companies receive premiums monthly or yearly from the insureds. Insurers use some portion of the premiums collected to run their business and to pay claims when some of their policyholders file claims for risks they underwrote. Underwriting income is the amount that remains after claims and expenses for a fiscal year have been settled. Insurance companies make money from life insurance cash value cancellation, and coverage lapses contribute to their underwriting income. For instance, if an insured cancels their permanent life insurance policy, the insurer will pay the insured the cash value of the policy and keep the profit they have realized on investing the premium initially collected. If the insured dies with money in the cash value accounts, the insurer keeps the cash value, and uses it to partially or fully offset the death benefit payout from its own savings. Insurance companies also use their underwriting income and profit to pay out claims.
• Investment Income: Insurance companies invest part of the premiums they receive in other business ventures such as real estate, shares, and bonds. The returns on such investments become part of the earnings of insurers from which they can pay out insurance claims. When an insurer receives more claims than what their underwriting income can settle, the insurer draws from their investment income to settle the claims.
• Reinsurance: Some big insurance companies insure other insurers. When insurers receive claims that are too much for them to settle, they can file claims with their insurers. The primary insurers then use the payouts they receive from their insurers to pay the claims they receive from those people to whom they sell their policies.

What Happens If an Insurance Company in Michigan Goes Bankrupt?

If an insurance company in Michigan goes bankrupt, the interest of their policyholders can be protected through receivership. The Michigan Department of Insurance and Financial Services, which regulates the affairs of the insurance industry, will step in for receivership.

Receivership is a process through which an independent person or body, a receiver, takes over the assets of the insurer that has gone bankrupt and oversees how the claims of their policyholders will be paid. The receiver may work to rehabilitate or liquidate the affected insurer. Receivership becomes more possible through the involvement of guaranty associations. All licensed insurance companies in Michigan are required by law to belong to a guaranty association and contribute a portion of all collected premiums as dues. When an insurer that is a member of a guaranty association goes bankrupt, the association will help pay the claims that such an insurer receives. There are two guaranty associations in Michigan:

• Michigan Property and Casualty Guaranty Association(MPCGA): MPCGA handles claims on all insurance coverages, except life and disability income insurance. The MPCGA will not honor any claim under any insurance type that it covers if the insolvent insurer is not its member.
• Michigan Life & Health Insurance Guaranty Association (MLHIGA): The MLHIGA protects policyholders of life and health insurance in Michigan if their insurance companies become insolvent. This association also covers disability income insurance claims.

What Are the Insurance Company Ratings in Michigan?

There are five independent agencies that rate insurance companies in Michigan. These rating agencies use their rating scales and parameters to determine insurance companies' financial strength and capacity to pay out claims. As such, these agencies may not arrive at the same result for each insurer. An insurance company may receive an excellent rating from a rating agency, but another rating agency may give an average rating. Therefore, comparing ratings from different rating agencies is advisable in order to make an informed decision on any insurance company in Michigan. The rating agencies for insurance companies in Michigan are:

• A.M Best Company, Incorporated
• Moody’s Investor Services
• Fitch Ratings
• Kroll Bond Rating Agency, Incorporated (KBRA)
• Standard and Poor’s Insurance Ratings Services

How Do Michigan Insurance Companies Make Money?

Michigan insurance companies make money in different ways, and this allows them to be able to afford to pay out claims received from their policyholders. Ways insurance companies in Michigan make money are:

• Underwriting Income: Insurance companies in Michigan charge their policyholders premiums payable monthly, biannually, quarterly, or yearly. The insureds pay these premiums for financial protection against the covered risks. Insurance companies settle claims and remove their businesses' running costs from the premiums they collect. Typically, the number of claims insurance companies receive is less than the number of policyholders they have. The money that remains after paying claims and deducting their businesses' running costs is their underwriting income, which is also their profit. To ensure they do not run at a loss, insurance companies hire actuaries who help them analyze their risks. This analysis helps them fix prices that ensure they still make some profits after paying out claims and removing their running costs.
• Investment Income: Insurance companies do not just keep the premiums that their policyholders pay in their business bank accounts; instead, they invest them. Many insurers invest in real estate, bonds, or stocks, and the returns on these investments become part of their income sources. Insurers often opt for short-term investments because they also need to have some money that they can use to payout claims.
• Coverage Lapse: Coverages lapse when policyholders fail to pay their premiums as and when due, as stated in their policy documents, and also fail to pay them during the grace period. When coverages lapse, insurers are no longer responsible for covering the insureds anymore, and the insureds forfeit the premiums they have already paid to the insurers.
• Cash Value Cancellation: Policyholders of permanent life insurance policies sometimes decide to cancel their cash value accounts, and when this happens, the insurance companies may retain the profits they have accrued on their cash value accounts. Insurers often invest the money in these accounts in other business ventures and only pay the actual amounts in the accounts to policyholders who decide to cancel their cash value accounts, while they keep the profits. Cash value accounts are meant to be used while the insured is alive. If CV was not used up by the insured while alive, the insurer keeps the cash value after the insured dies.

Discuss your insurance needs with knowledgeable Michigan-licensed professionals who have access to multiple insurers and plan options to choose from.