Michigan Auto Insurance: Why So Expensive?

Michigan has the most expensive auto insurance in the US. On average, drivers pay $3,688 per year for a policy meeting state minimums, which is nearly 300% higher than the national median rate. The average cost of auto insurance in Michigan is $5,471 for a full-coverage policy. This is driven by factors such as the state's insurance requirements, median healthcare costs, rates of uninsured drivers, and more.

No-fault car insurance

Michigan is a No-Fault state for auto accidents. This means that if you are injured in a car accident, your auto insurance company will pay for your medical bills and lost wages, regardless of who was at fault for causing the crash. This is in contrast to other states, where you would typically recover your medical bills and wage loss from the at-fault driver's insurance.

The Michigan No-Fault Insurance law was designed to help people injured in car accidents. It ensures that victims get the help they need promptly and without regard to fault. This is especially important as, under the previous tort liability system, seriously injured victims were often denied or under-compensated, and lengthy delays forced victims to bear huge financial burdens.

Under the No-Fault system, if you are injured in a car accident, you will turn to your own auto insurance company for the benefits you need to recover and rebuild your life. These benefits will pay for your accident-related medical bills and your lost wages if your injuries disable you from returning to work.

The No-Fault system also impacts the damages you can recover from the at-fault driver and their insurance company. In Michigan, you will often have two claims: a no-fault claim with your insurance company and a negligence claim against the at-fault driver and their insurance company. The payments you can recover differ depending on the type of claim. You can generally recover pain and suffering damages from the negligence case against the at-fault driver, and your medical bills, wage loss, and other benefits from the no-fault claim with your insurance company.

It is important to note that there are some exceptions to the No-Fault system. In certain circumstances, you may be able to step outside of the No-Fault system and file a third-party insurance claim or lawsuit against the at-fault driver. For example, if the accident caused serious impairment of a bodily function, permanent and serious disfigurement, or death, you may be able to hold the at-fault driver responsible for the accident and pursue compensation for all categories of losses, including pain and suffering and other non-economic damages.

High insurance fraud

Michigan's auto insurance rates are the highest in the United States, with the average Michigan driver paying 85% more than the national median insurance rate. One of the reasons for these high insurance costs is the high rate of insurance fraud in the state.

Michigan insurance companies suffer from high rates of insurance fraud every year. Reports show that about 10% of no-fault insurance claims in Michigan are fraudulent. Most fraudulent claims request the insurer to pay injured victims' family members for patient care or cover unnecessary medical bills. This results in significant losses for insurance companies, which they attempt to cover by raising insurance rates.

In addition to the high frequency of fraudulent claims, Michigan's insurance law requires vehicle insurance companies to pay insurance coverage within 30 days of receiving a claim. This short time frame may prevent insurers from adequately investigating supposed accident victims, making it easier for fraudsters to succeed.

To combat insurance fraud, the Michigan legislature has passed a bill establishing a vehicle insurance anti-fraud committee overseen by the Michigan Police. This committee will be responsible for investigating and prosecuting suspected auto insurance fraud cases, with the goal of reducing the number of fraudulent claims and their impact on insurance rates.

The high rate of insurance fraud in Michigan is a significant contributor to the state's high auto insurance costs. By implementing measures to combat fraud and tighten investigation processes, the state aims to reduce the financial burden on both insurance companies and drivers.

High number of uninsured drivers

Michigan has one of the highest numbers of uninsured drivers in the US. With about 20% of Michigan drivers lacking auto insurance, insurance companies in the state charge high premiums to cover the income deficit. This makes Michigan the most expensive state for car insurance in the country.

In Detroit, for example, it is estimated that over half of all drivers are driving without auto insurance. The situation is similar in other cities like Battle Creek and Flint. Across Michigan, the average premium in 2019 for the 37 ZIP codes where the majority of residents are Black was $5,500, compared to a statewide average of $3,106.

The high number of uninsured drivers in Michigan is due to a variety of factors, including the high cost of auto insurance in the state, which leads some drivers to opt out of coverage. The state's "no-pay, no-play" law, which limits the amount that uninsured drivers can collect if they are in an accident, has also been cited as a contributing factor.

To address the issue of uninsured drivers, Michigan has implemented online insurance verification systems to identify uninsured motorists. However, the state's insurance reform law, which contributed to an 18% drop in average premium costs from 2019 to 2020, has not been effective in reducing the number of uninsured drivers. As a result, insurance companies continue to charge high premiums to cover the costs associated with uninsured drivers.

Personal injury lawsuits

Michigan's auto insurance is the most expensive in the United States, with drivers paying 85% more than the national median insurance rate. One of the reasons for this is the high number of personal injury lawsuits.

The no-fault insurance system in Michigan provides added benefits, allowing insurers to cover medical bills even when their policyholder is not at fault for an accident. This system was intended to reduce insurance rates and the number of fraudulent claims; however, this has not been the case. The no-fault system has led to an increase in lawsuits, as individuals take legal action to seek compensation for their injuries.

The high rate of personal injury lawsuits in Michigan is also attributed to the state's lack of a watchdog group for no-fault insurance fraud. This has resulted in a higher number of lawsuits, as there is no dedicated entity to address and deter fraudulent claims.

In addition to the no-fault system and the absence of a watchdog group, other factors contribute to the high number of personal injury lawsuits in Michigan. The state's high rate of uninsured drivers, approximately 26%, also plays a role. When uninsured drivers are involved in accidents, the other party's insurance provider often covers the property damage and medical expenses through uninsured motorist insurance. This shifts the cost burden to insured drivers, leading to increased insurance rates.

The high cost of medical bills in certain areas of Michigan, such as Detroit, is another contributing factor. Exorbitant medical bills lead to higher insurance rates as providers anticipate these costs. For example, as of 2017, medical providers in Detroit charged up to $5,300 for an MRI that would typically cost under $1,000 at other facilities.

To address the issue of high auto insurance rates in Michigan, lawmakers have proposed various reforms. These include making the no-fault insurance system optional or eliminating it entirely, removing the requirement for unlimited medical coverage for victims of car crashes, and preventing the use of non-driving factors to determine insurance costs. While these reforms aim to reduce insurance charges, there are concerns that they may also lead to an increase in auto insurance lawsuits and leave some injured victims without adequate coverage for their medical bills.

Inflation

Michigan's high auto insurance rates are rising due to inflation, which is affecting the wallets of Michigan residents. In 2023, the average cost of full coverage was projected to rise by 8.4% across the US, bringing the average cost to $1,780 annually. However, in Michigan, the average price is much higher at $4,788 per year. This is despite state leaders allowing drivers to opt out of personal injury protection (PIP) coverage and unlimited coverage in the event of catastrophic injuries.

The high cost of auto insurance in Michigan is also due to the state's no-fault insurance system, which covers medical bills even when the policyholder is not at fault for an accident. Michigan state law requires drivers to carry PIP coverage, which provides unlimited benefits to policyholders and any uninsured passengers. The Michigan variety of PIP is more expensive than ordinary PIP, with insurance companies paying an average of $555,000 for lifetime medical benefits.

In addition, Michigan has a high rate of insurance fraud, with about 10% of no-fault insurance claims being fraudulent. The short grace period for insurance companies to pay out claims may prevent adequate research on supposed accident victims, leading to losses for insurers that are covered by increased premiums.

The combination of inflation, the no-fault insurance system, high insurance fraud rates, and other factors has contributed to the high and rising cost of auto insurance in Michigan.

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