Why is Michigan Car Insurance so Expensive?
Get a fast and free car insurance rate comparison
Did you know that Michigan has the highest car insurance rates in the country? It’s held this position for the past 5 years! So why is Michigan car insurance so high?
Michigan’s high rates are largely due to the state’s extensive car insurance requirements. In turn, exorbitant car insurance premiums have motivated recent reform in Michigan car insurance law.
To learn more about the reasons behind Michigan’s high rates and what is being done to lower them, keep reading.
Michigan Car Insurance Rates
According to NerdWallet, the average cost of car insurance is $1,427 per year nationwide. In Michigan, that average jumps up to $2,331 a year, a whopping 63% higher than the national average!
If a driver chooses to purchase the bare minimum of insurance coverage, the differences are even starker:
National average – $606 per year
Michigan average – $1,285 per year
In some Michigan cities, the cost of car insurance reaches the five-figure range. Check out the annual averages for some of Michigan’s most expensive cities:
Detroit – $13,404
Dearborn – $12,522
Inkster – $10,781
Oak Park – $10,725
Eastpointe – $10,643
The Impacts of Michigan’s High Car Insurance Rates
Many drivers choose to forgo car insurance, even though Michigan is the only state that threatens jail time for driving uninsured.
These high car insurance rates not only burden law-abiding residents, but they also discourage out-of-state talent from moving to Michigan. In turn, businesses are less likely to invest in Michigan’s cities. With impacts like these, the need for car insurance reform is quite clear.
Why is Michigan Car Insurance So Expensive?
So why is Michigan auto insurance so high?
Here a few contributing factors to the state’s sky-high prices:
Michigan requires all of its drivers to purchase no-fault insurance. These policies allow drivers to seek economic reimbursement from their car insurance provider, regardless of who caused the accident.
Even though no-fault insurance was introduced to lower car insurance costs, it ended up raising prices in every state that implemented it as a mandatory form of coverage.
Unlimited Personal Injury Protection Coverage
A unique (and expensive) feature of Michigan’s mandatory no-fault coverage is its Personal Injury Protection (PIP) component. Michigan law has historically mandated that every policyholder purchase unlimited PIP coverage.
This means that auto insurers must pay for the economic loss related to an auto accident, including these expenses:
Travel expenses to and from medical visits
Attendant care from a family member, friend, or nurse
Housework services, like cleaning and yard work
Lost wages due to an inability to work
Unlimited PIP Insurance Coverage Is For Life
The financial coverage of PIP is lifelong. Thus, if a Michigan driver suffers a severe injury from a car accident, their auto insurer must pay their medical expenses for the rest of their life. These costs can quickly enter into the millions.
As you can imagine, this places a significant burden on car insurance providers. And while Michigan drivers enjoy outstanding medical coverage from their PIP, they pay for this care in the form of highly inflated car insurance premiums.
Keep in mind that Michigan is the only state with mandatory unlimited PIP coverage. The other 12 states that require PIP have much lower coverage minimums. For instance, New York has the second-highest PIP coverage requirement and it’s only $50,000.
#2 Medical Providers Charge Auto Insurers High Rates
The laws in Michigan have historically allowed medical providers and hospitals to charge auto insurers “customary rates.” In other words, car insurance companies don’t receive any special discounts. In contrast, health insurance companies enjoy notable discounts.
Just take a look at the differences discovered in a 2013 study looking at the billed costs of a lower back MRI:
Medicare – $484
Michigan’s workers’ compensation – $766
Auto insurance companies – $3,279
As you can see, auto insurers are charged way more for the same medical services! To afford these medical bills, they must charge their customers higher premiums.
#3 Rising Litigation Costs
Even though requiring no-fault insurance was supposed to reduce litigation, it didn’t have the desired effect. Michigan’s personal injury lawsuits have risen 130% between 2007 and 2017.
Two-thirds of these lawsuits feature a Michigan driver suing their auto insurer over a no-fault insurance claim. These lawsuits cost car insurance companies a lot of money. To stay afloat, they must raise their premiums.
#4 Increasing Rates of Car Insurance Fraud
Lastly, Michigan’s car insurance rates are expensive due to a high rate of fraudulent claims. It’s estimated that around 10% of all of Michigan’s no-fault claims are fraudulent.
When you consider how generous the benefits are, it’s no surprise that people take advantage of the system.
Fraudulent claims can take the following forms:
Inflated reports of lost wages
Unnecessary medical care requests
Unnecessary family-provided attendant care
An Example of Fraud
Did you know that an injured Michigan driver can “hire” their family member to take care of them after an accident? This is considered “attendant care,” which is covered under PIP insurance. In turn, the car insurance must pay this family member an hourly wage.
It’s not hard to imagine how someone would game the system to score some extra money for their family.
In fact, 60% of catastrophic claims requested payment to a friend or family member for providing attendant care.
Michigan’s Expedient Reimbursement Period
Another factor contributing to fraud is that first-party car insurers must reimburse their customers’ claims within 30 days. If they fail to do so, they get hit with a 12% penalty.
In turn, many fraudulent claims slip through the cracks. Car insurance companies simply don’t have enough time to verify claims thoroughly.
To cover the costs of these fraudulent claims, car insurance companies raise their premiums, placing a greater burden on Michigan drivers.
Cheapest Car Insurance Michigan
If you’re a Michigan resident struggling to pay your premium, it’s important to realize that each auto insurance company offers a different set of rates, depending on a range of personal factors. Most likely, the cheapest car insurance in Michigan isn’t the best option.
When Will Michigan Car Insurance Go Down?
So when will Michigan car insurance go down? Michigan’s inordinate auto insurance rates have been a topic of discussion for a while. Lobbyists have finally swayed Michigan officials to implement some much-needed reform.
This car insurance reform took effect on July 2, 2020. Here are a few crucial changes:
Elimination of the unlimited PIP coverage – Since one of the major contributors to Michigan’s high rates was the unlimited PIP coverage requirement, it will be optional going forward. Car insurers will also be legally required to reduce their PIP prices. \ \ Here are the new PIP options and their associated price reductions:
Unlimited – 10% reduction
$500,000 – 20% reduction
$250,000 – 35% reduction
$50,000 – 45% reduction
No PIP coverage – 100% reduction
Higher bodily injury liability coverage requirements – To address the auto insurance litigation costs, the liability minimums have increased:
Past requirement – $20,000 per person and $40,000 per accident
New requirement – $250,000 per person and $500,000 per accident
Elimination of non-driving factors from premium determination – Going forward, Michigan car insurers can no longer take into account the following personal factors when deciding a driver’s premium:
Medical caps on billing fees – The reform also limits what medical providers can charge car insurance companies:
Starting in 2021, they can only charge auto insurers 200% to 250% of what they charge Medicare.
By 2023, they can only charge auto insurers 190% to 230% of what they charge Medicare.
The creation of a fraud investigation unit – Michigan has established a new fraud investigation unit. It will look into fraud for car insurance claims, as well as other financial market claims. Fraud prosecution will be taken care of by the Michigan Department of Attorney General.
More insurance regulations – Lastly, the July 2020 reform mandates that auto insurers have any rate changes approved by the state before they implement them with customers.
All together, these reforms should make a significant difference in the costs of Michigan auto insurance. In turn, the average auto insurance rates are projected to drop by 16.5%!
Get A Lower Rate on Your Michigan Car Insurance
So why is Michigan insurance so high? By now, you should understand the reasons that contribute to Michigan’s inflated rates. With the new laws, these rates should be much more affordable.
To get the best rate on your new Michigan car insurance rates, make sure to take your time and shop around. Online Auto Insurance provides free quotes from Michigan car insurers, available within minutes from their comparison tool located on the top of this page. In turn, you can easily compare each company’s offerings.
After doing this research, you’ll be able to choose an auto insurer with confidence.
Bankrate. Car Insurance Rates By State 2020.\ https://www.bankrate.com/insurance/car/states/
NerdWallet. Average Car Insurance Costs in 2020.\ https://www.nerdwallet.com/blog/insurance/car-insurance-basics/how-much-is-car-insurance/
ValuePenguin. Best Car Insurance Rates in Michigan.\ https://www.valuepenguin.com/best-cheap-car-insurance-michigan#average-cost
Insurance Information Institute. Facts + Statistics: Uninsured motorists.\ https://www.iii.org/fact-statistic/facts-statistics-uninsured-motorists
University of Michigan. Auto Insurance and Economic Mobility in Michigan: A Cycle of Poverty.\ https://poverty.umich.edu/files/2019/03/PovertySolutions-CarInsurance-PolicyBrief-r1.pdf
Consumer WatchDog. Study Shows No-Fault Auto Insurance Far More Expensive Than Traditional “Personal Responsibility” Systems.\ https://consumerwatchdog.org/newsrelease/study-shows-no-fault-auto-insurance-far-more-expensive-traditional-personal-responsibili
The Balance. Understanding Minimum Car Insurance Requirements.\ https://www.thebalance.com/understanding-minimum-car-insurance-requirements-2645473
Citizens Research Council of Michigan. Medical Costs of No-fault Automobile Insurance.\ https://crcmich.org/publications/medical_cost_no-fault_automobile_insurance-2013
Crain’s Detroit Business. Duggan divides lawyers on auto insurance.\ https://www.crainsdetroit.com/article/20171008/news/641496/duggan-divides-lawyers-on-auto-insurance
Insurance Research Council. Michigan’s No-Fault System Pressured by Catastrophic Claims, Changes in Treatment Patterns.\ https://www.insurance-research.org/sites/default/files/downloads/MI_PressRelease3-28.pdf
Business Insider. The best cheap car insurance in Michigan.\ https://www.businessinsider.com/personal-finance/who-has-the-best-cheap-car-insurance-michigan
Forbes. What To Expect From Michigan’s New Auto Insurance Laws On July 1.\ https://www.forbes.com/sites/advisor/2020/06/30/what-to-expect-from-michigans-new-auto-insurance-laws-on-july-1/#60afcbb737f9
MLive. Michigan car insurance rates could decline by at least 16.5 percent.\ https://www.mlive.com/public-interest/2020/04/michigan-car-insurance-rates-could-decline-by-at-least-165-percent.html