6 Reasons Why Insurance is So Expensive in Michigan

Owning a car in Michigan is quite exhausting. It is one of the most expensive states for auto insurance. In fact, Michigan has never fallen out of the first three spots for the most expensive auto insurance in the country for the past 10 years. According to insurance industry data, an average Michigan resident pays approximately $948 for minimum coverage and $2,309 for full coverage each year. This translates to 85% more than the national median rates for car insurance.

Why is insurance so expensive in Michigan? Let’s explore some of the driving forces behind high Michigan car insurance quotes.

Reason 1: No-fault Car Insurance System

A no-fault insurance system covers the costs of medical expenses for you and your passengers if you sustain injuries in a car accident. The benefits apply to everyone in the vehicle, regardless of who is at fault for the collision. So if you rear-end another car or someone else backs into yours, and one of your passengers gets injured, the insurance will cover their medical expenses.

The no-fault insurance system was intended to reduce fraud. It also aims to bring down the cost of car insurance by settling minor claims out of court. But it took a turn for the worst. The added benefits drove insurance costs in Michigan over the roof instead.

Insurance companies pay the first $550,000 of an accident-related medical bill. After the bill exceeds that dollar amount, the Michigan Catastrophic Claim Association (MCCA) steps in to cover all the medical expenses that you need. The MCCA charges $170 per year per policy, a massive addition to the already high insurance costs.

Reason 2: High Rates of Insurance Fraud

Michigan is a lucrative ground for auto insurance graft. This is due to its mandatory requirement for motorists to buy unlimited medical benefits as part of insurance. According to the Insurance Research Council, approximately 60% of insurance claims include faked/ exaggerated injuries and unnecessary patient care services provided by the victim’s family members.

To make matters worse, the Michigan Insurance Law requires first-party car insurers to reimburse claims within 30 days. The failure to do so will lead to penalties. This grace period is too short to scrutinize every claim. As a result, it is easy for scammers to trick the system into an outlawed payout.

So how exactly does fraud in the system drive up the cost of insurance?

Rates are a function of losses. The more an insurer loses to fraud, the more it inflates its rates. The cost of fraudulent claims is passed on to customers in the form of high premiums.

Reason 3: High Number of Uninsured Drivers

Michigan has the highest number of uninsured drivers in the nation after Mississippi. Approximately 20% of its drivers lack auto insurance. According to a 2018 report issued by Michigan State Police Sgt Eric Sumpter, MSP Cadillac Post recorded 135 citations over one year for drivers without proof of valid insurance and 96 citations for vehicles operating without security.

In a no-fault insurance system, insurers pay for property damage and medical bills at the expense of uninsured drivers. After all, they won’t have a reason to buy insurance as long as they don’t get caught. This forces insurance companies to increase insurance costs to avoid running into losses when claims are made. Therefore, the higher the number of uninsured drivers, the more costs are transferred to those with full coverage insurance.

Reason 4: Mandatory Personal Injury Protection

New changes in Michigan’s Personal Injury Protection (PIP) requirements went into effect in July 2020. Being a no-fault state, it requires regular drivers to have PIP coverage. PIP coverage helps accident victims pay off medical bills and reimburse lost wages without regard to who caused the accident.

Unlike other states, Michigan residents must purchase PIP packages that offer unlimited benefits. While it ensures prompt availability of funds to settle medical bills after an accident, PIP protection increases insurance premiums as compared to other MedPay options.

Reason 5: Frequent Occurrence of Personal Injury Lawsuits

When you suffer a physical or mental injury or damage your property during an accident, you receive compensation by filing a personal injury lawsuit. Michigan’s injury laws allow you to file claims for the economic and non-economic losses you incur in an accident at the expense of the responsible party.

Over the past decade, Michigan’s personal injury lawsuits went up by 130%. Two-thirds of the cases are from drivers suing their insurers over unpaid no-fault claims. All fingers point at the no-fault insurance system for the explosion of accident-related lawsuits. It allows legal action in cases of serious injury, tempting victims to maximize medical care.

Reason 6: Limited Cost Controls for Medical Coverage

Auto insurers in Michigan pay 57% more in medical claims as compared to insurers in other states. Why?

The Michigan law allows health care institutions to use customary charges. This may sound quite fair from a layman’s perspective, but it is costly in the real sense. Auto insurers end up paying more than health insurers for the same medical services. This is because they have limited power to negotiate for discounts on their charged rates.

Another factor that inflates the cost of medical coverage in Michigan is the rate of medical use. The unique and generous medical insurance, which includes all the reasonably fundamental products and services for an accident victim’s care, has resulted in higher use of medical services. This, in turn, drives up the cost of auto insurance.

Bottom Line

Michigan’s unique no-fault system is the major driving force behind the state’s high insurance rates. The Personal Injury Protection (PIP) policy guarantees unlimited lifetime coverage for accident victims, extending to passengers who do not have insurance. This is a great deal if you are in an accident and your insurance company follows through with the claims. However, you end up paying unbelievably high premium rates each year.

Insurance fraud, frequent occurrence of personal injury lawsuits, and limited cost controls for medical coverage have also pushed the cost of premiums up the charts. As a result, many drivers are unable to afford insurance coverage.

John Otero

John Otero

John Otero is an industry practitioner with more than 15 years of experience in the insurance industry. He has held various senior management roles both in the insurance companies and insurance brokers during this span of time. He began his insurance career in 2004 as an office assistant at an agency in her hometown of Duluth, MN. He got licensed as a producer while working at that agency and progressed to serve as an office manager. Working in the agency is how he fell in love with the industry. He saw firsthand the good that insurance consumers experienced by having the proper protection. John has diverse experience in corporate & consumer insurance services, across a range of vocations. His specialties include Major Corporate risk management and insurance programs, and Financial Lines He has been instrumental in making his firm as one of the leading organizations in the country in generating sustainable rapid growth of the company while maintaining service excellence to clients.