Seriously, What is Wrong with Michigan Car Insurance?


4 Factors Driving Up Car Insurance Rates in Michigan

michigan license plates
Is your car insurance premium on the rise? Compare hundreds of new quotes instantly! →

Auto insurance rates have been steadily rising year over year all across the country, but in no state is this more obvious and concerning than Michigan. Residents in the state pay the highest insurance rates of any state in the U.S.

How do Michigan insurance rates stack up to the rest of the country?

MOST Expensive States for Car Insurance
State Annual Car Insurance Premium
1. Michigan $2,087
2. Delaware $2,073
3. Oklahoma $1,990
4. Kentucky $1,925
5. Texas $1,762

And…

LEAST Expensive States for Car Insurance
State Annual Car Insurance Premium
1. Ohio $764
2. North Carolina $817
3. Idaho $919
4. Maine $937
5. Iowa $971


(See how the rest of the states rank in auto insurance premiums here.)

The Zebra’s own State of Auto Insurance Report shows Michigan leading the pack in terms of the highest car insurance premiums in the U.S. For most states with high insurance rates, the causes have to do with consistent damaging weather events, proximity to densely populated areas, or both. In Michigan, however, weather has little to do with it. In fact, notice in the below map how Ohio, Michigan’s next-door neighbor to the south, ranks #1 on our list of least expensive states to insure a vehicle while experiencing a hiring amount of severe weather incidents.

map of weather events in united states

So…why is Michigan car insurance so high?

As a licensed insurance agent, I’d point to these four key reasons:

1. Unlimited PIP Coverage

First, it’s important to note that Michigan is a No-Fault state, meaning drivers’ insurance policies cover their own injuries regardless of who was at fault in the accident.

In the majority of No-Fault states, drivers are required to carry Personal Injury Protection (PIP) to cover their own injuries, regardless of who caused the accident, and this is true for Michigan. What makes Michigan’s PIP requirement different from any other No-Fault state, however, is that Michigan requires drivers to purchase an unlimited amount of PIP coverage.

While most states cap the amount of PIP coverage drivers can claim for any single accident, Michigan allows PIP coverage to extend indefinitely for the duration of an injured person’s life. So for example, if a person involved in a car crash experiences lasting injuries, such as losing a leg or being permanently disabled, PIP coverage would continue to pay for their treatment throughout the remainder of their life. This may sound like a great feature for consumers on the surface, but in reality, this PIP requirement results in huge claim payouts by insurance companies doing business in Michigan.

Another PIP issue is the fact that auto insurance companies in the state don’t have the option to negotiate with hospitals and care providers on the cost of treatment the way they do with body shops and repair facilities for property damage. Further, because unlimited PIP coverage can lead to big-time payouts for doctors and patients, there is an alarmingly high amount of insurance fraud across the state.

And as we’ve written, when insurance companies have to pay more in claims, they often end up driving up the cost of auto insurance rates for everyone in the state.

2. MCCA Fees

For insurance companies in Michigan to afford providing unlimited PIP coverage and subsequent claim payouts, the state implemented the Michigan Catastrophic Claims Association (MCCA) fee.

The state-assessed MCCA fee, which just increased from $160 to $170 per vehicle July 1, is intended to reimburse insurance companies who pay out more than $545,000 for a medical claim. So now, in addition to the cost of the coverage a driver selects, Michigan drivers have to pay an additional $170 for each vehicle they have listed on their policy.

detroit michigan cars

3. Densely Populated Cities vs. Rural Areas

Since car insurance varies by zip code, densely populated cities like Detroit and Flint can often skew the average premium for the state of Michigan. That’s not to say that rates aren’t high across the board in the state, but these cities in particular are subject to the highest rates because of higher frequency of collisions, theft, and claims filed there.

And because insurance companies can’t cherry pick or exclude certain cities or zip codes from their rate changes statewide, price increases due to high insurance losses in those areas are spread among drivers all over the state.

Due to the increasing cost of coverage, drivers in Michigan are looking for alternatives to purchasing a policy they simply can’t afford.

4. 7-Day Car Insurance

Drivers are legally required to carry auto insurance in the U.S., and without it, they can’t drive a newly purchased vehicle off the lot or renew their vehicle registration. Given the astronomical car insurance prices across the state, some people are looking for short-term coverage solutions in the form of a seven-day car insurance policy.

Among the main problems with these types of “short-term insurance policies” – and there are quite a few – is that they prevent a driver from building a history of insurance coverage. Maintaining continuous coverage indicates to insurance companies that a driver is a lower risk. Once a driver maintains coverage with no lapse for six months, their rates would drop (all other factors excluded). But with a seven-day policy, a driver does not have that coverage history and would see incredibly high rates the next time they shopped around.

Seven-day policies also generally cost more per day than a traditional six-month or 12-month policy would. But with high down payments and high future monthly installments, the short-term policy is often too tempting when drivers simply need insurance to renew their registration. That leads to another issue: uninsured drivers.

What about Uninsured Drivers?

With the sky-high cost to insure a vehicle in Michigan, it’s no surprise that the state also experiences an extremely high number of uninsured drivers (21% as of 2012 according to the Insurance Information Institute).

An audit conducted by Michigan Secretary of State Ruth Johnson looked at 90,701 seven-day policies that were submitted to the state between July 2015 and June 2016. Of those policies, only 16% were still active after the first 90 days, according the The Detroit News. That’s an outrageously high number of uninsured drivers on the road.

Simply getting insurance for the purposes of renewing tags or buying a vehicle from a dealership and then canceling it is a major problem in Michigan and has lead to an attempt by the state to do away with the entire practice of short-term policies because they allow drivers to skirt the financial responsibility law.

Further, because of the state’s no-fault laws, uninsured drivers in Michigan expose themselves to potentially catastrophic medical bills if they are hit and injured by another driver – even if the person who caused the accident is insured.

Efforts to Make Michigan Car Insurance More Affordable

Legislators are starting to hear the wrath of Michigan residents who are faced with ever-rising insurance rates. This is largely due to efforts made by groups like Insurance Alliance of Michigan, who are working to bring reform to the insurance laws in the state. This is a positive development for residents in Michigan since it brings the issue to the forefront of legislators’ minds. The only way for rates to start a downward trend, and hopefully reach affordable levels once again, is for Michigan residents to voice their displeasure to their state representatives. What could help?

  • Capping the amount of PIP coverage available to drivers would be a great start in decreasing rates. This would alleviate the ongoing issue of insurance companies covering treatment for years on end that drives up rates for all drivers.
  • Allowing healthcare providers and auto insurance companies to freely negotiate the cost to treat crash victims would also go a long way to lowering the cost of an auto policy in Michigan.
  • Best yet would be to adopt the strategy of other states, like Colorado in 2003, to abolish no-fault insurance and return to a tort-based auto insurance system. Doing so would all but remove the unique PIP issue in the state and allow for drivers to carry coverage in the event they cause injury or damage to other drivers.

Until major changes are made to the insurance laws and regulation in Michigan, there are still things drivers can do to find affordable coverage:

  • Drive safely and avoid any speeding, DUI, or other moving violations.
  • Combine insurance policies with other members of your household.
  • Maintain continuous coverage for six months with no lapse.
  • Then compare rates every six months to ensure you’re getting the best rate and the right level of coverage.