Car insurance costs have steadily increased in the U.S. in the past decade, but no state has felt the impact quite like Michigan. Drivers there pay the highest car insurance rates in the country.
But that could soon change following Michigan’s passage of sweeping car insurance reform, scheduled to go into effect July 1, 2020. The new law makes major changes and, significantly, it eliminates the state’s requirement that all drivers buy unlimited, lifetime injury coverage for people hurt in car accidents.
Here we take a look at the changes and what they could mean for Michigan drivers.
This report explores:
Drivers in Michigan pay an average of $2,693 each year for car insurance — 83% higher than the national average rate of $1,470. It’s even more expensive for drivers in cities like Detroit, where premiums can top $6,000 per year and account for more than 20% of residents’ annual income.
In fact, Detroit beats both New York City and Los Angeles when it comes to U.S. cities with the highest car insurance rates. Detroit has been No. 1 in the country for the past eight years.
Michigan has the highest car insurance coverage requirements in the U.S. — most notably Personal Injury Protection (PIP) insurance with unlimited, lifetime medical coverage for car accident injuries. Michigan’s insurance requirements guarantee many health and recovery benefits to injured drivers, including reimbursement for lost wages, in-home nursing care, and specialized medical treatments.
These unlimited benefits make Michigan’s car insurance coverage arguably the best in the country for those injured in car crashes. But there are expensive downsides. The system attracts costly medical claims, fraud, and legal battles among insurers, medical providers, and policy holders over what’s covered and how much it’ll cost. In fact, half of all civil cases filed in Michigan in 2017 related to car accidents, according to one study.
Insurance companies raise rates for all drivers to account for those expensive losses, and the problem is compounded when drivers drop insurance coverage because they can’t afford it.
Learn more about Michigan's high car insurance rates with this quick video.
All of these factors make Michigan's car insurance rates the highest in the country, creating significant economic impacts across the state. Michiganders pay on average 4.8% of their incomes for car insurance, twice the national average of 2.4%. These high costs don’t just hit individual drivers. Economic experts say the high cost of auto insurance in Michigan hinders the state’s ability to retain talented employees and attract new businesses.
Michigan lawmakers and drivers spent decades debating how to reduce the high cost of car insurance in the state. Now, change is finally on the way.
On May 30, 2019, Democratic Gov. Gretchen Whitmer signed a bill backed by Republican lawmakers enacting the following reforms that will take effect for Michigan residents on July 1, 2020.
Lawmakers created five PIP coverage options for drivers, allowing them to keep unlimited PIP or choose less coverage for greater discounts. The law requires insurance providers to reduce the cost of (only) the PIP portion of car insurance by the following amounts until July 1, 2028.
Remember, drivers pay for PIP coverage so their own auto insurer covers their (and their passengers’) injury expenses after an accident. Choosing a lower coverage limit can reduce the cost of your insurance — but if you’re in an accident, your medical expenses will be paid only up to the limit you choose.
1. Unlimited PIP coverage (10% reduction)
Covers unlimited, lifetime car accident injury expenses. Drivers concerned about maintaining their current level of car injury coverage should keep this option.
2. $500,000 of PIP coverage (20% reduction)
Covers car accident injury expenses up to $500,000.
3. $250,000 of PIP coverage (35% reduction)
Covers car accident injury expenses up to $250,000.
4. $50,000 of PIP coverage (45% reduction)
Covers car accident injury expenses up to $50,000. This is the lowest option available for Medicaid recipients.
5. Opt out of PIP coverage (100% reduction)
Drivers can opt out of PIP coverage completely only if they have Medicare or a qualifying health insurance plan that covers car accident injuries.
Lawsuits between drivers are limited in Michigan because drivers typically turn to their own insurance provider to cover injury costs after an accident. This system of insurance is called “no-fault,” and it’s practiced in about a dozen states.
Drivers can still be sued if they cause an accident that results in another person’s serious injury or death. That’s where liability coverage comes in.
Before July 1, 2020: Drivers have to buy a minimum of $20,000 of coverage for one person injured or killed in an accident and $40,000 of coverage for accidents with two or more people injured or killed.
After July 1, 2020: Drivers will be offered a default minimum of $250,000 of coverage for one person injured or killed in an accident and $500,000 of coverage for accidents with two or more people injured or killed. Drivers will be allowed to request and receive reduced minimums of $50,000 and $100,000, respectively.
Each state sets its own rules for what information insurance companies can or can’t use when pricing auto insurance.
This includes what kind of car you drive, your annual mileage, and dozens of other potential factors from your credit history to your level of education. Insurers use this information because it helps them more accurately predict how likely a driver is to file a claim. However, some states have banned certain personal factors they consider unfair to use in car insurance pricing.
On July 1, 2020, Michigan will ban: gender, marital status, occupation, education, zip code, credit score, residential status.
Insurers will still be allowed to use certain credit information, such as payment history. They’ll also be able to use “territories” as an alternative to zip codes.
Healthcare has gotten more expensive in the U.S., but medical claims from car crashes are especially prone to price inflation. One study in Michigan found that while auto insurers sometimes paid more than $3,000 for a patient’s MRI, Medicare typically paid less than $500 for the exact same procedure.
That’s in part because Michigan law currently requires insurers to pay whatever is “reasonably necessary” to treat crash victims. Disputes over what’s covered and how much it’ll cost often land in court, which further balloons the cost of insurance for all drivers.
On July 1, 2021, Michigan will institute a new medical fee schedule to cap how much insurers are required to pay for medical services and treatments.
The limits will phase in starting at 200%-250% of what Medicare would pay for a medical procedure. The reimbursement rate will drop to 190%-230%, depending on the type of medical facility, by 2023.
Lawmakers believe this will rein in a major contributor Michigan’s high insurance costs, but it’s important to note that the fee schedule does not kick in until 2021, one year after the rest of the law goes into effect.
Michigan currently follows a “file and use” system of insurance regulation, which allows insurers to start using new rates as soon as they’re submitted to the state.
State regulators can later reject those rates — but it’s rare. In fact, they didn’t reject a single rate between 2012 and 2016. (Regulators issued 199 objections in that time, which they say insurers adequately answered.)
Starting on July 1, 2020, the state insurance regulator must approve new rates before insurers can start charging customers.
Lawmakers hope this and other new rules will strengthen government oversight of car insurance rates.
After all of these changes, drivers in Michigan have one big question: Will this finally reduce the high cost of car insurance?
Insurance industry representatives say they’re trying to figure that out. The law contains changes that could reduce, shift, and add to costs for drivers.
How Michigan’s changes might lower car insurance rates:
The new law requires insurers to reduce the cost of only the PIP portion of insurance, which makes up about half of a typical insurance premium, until July 2028. Drivers who choose to keep unlimited PIP coverage will see about a 10% savings, while those who choose less coverage will see even bigger discounts. Some lawmakers have speculated that drivers who opt-out of PIP coverage could save more than $1,000 per year.
Insurers will still be allowed to raise prices on the non-PIP parts of car insurance, but lawmakers believe drivers will still see overall savings.
The new limits on medical billing (i.e. the cost of an MRI would max out at about twice what Medicare would pay) are also expected to rein in the cost of car insurance in Michigan. While this could reduce costs in the short term, the full impact won’t be realized the medical fee schedule goes into effect starting in 2021.
How Michigan’s changes might raise car insurance rates:
Lawmakers more than doubled how much liability coverage drivers will be required to buy, from $20,000 in coverage for accidents with one injured person and $40,000 for accidents with two or more injured people to $50,000 and $100,000, respectively.
Insurance industry representatives have said this increasing liability cost could cut into savings drivers would see from PIP reductions.
And how Michigan’s changes might shift costs around:
Insurers will have to adjust their pricing formulas to account for the new ban on certain non-driving rating factors. Things like your level of education and whether you own or rent your home will no longer impact what you pay for car insurance.
This change likely won’t reduce the overall cost of car insurance in Michigan. However, it will change how those costs are distributed to individual drivers. In other words, the rating factors that are left — like your annual mileage and driving record — could carry more weight.
While Michigan requires drivers to buy insurance with unlimited, lifetime medical benefits, insurers don’t actually pay unlimited, lifetime medical expenses. In 1978, the state created the Michigan Catastrophic Claims Association (MCCA) to reimburse insurers once a claim surpasses a set amount (currently $580,000 per claim). The funds come from a per-vehicle fee ($220 for 2019-2020) paid by insurers that pass the cost along to all drivers. After 2020, drivers who opt out of unlimited PIP will no longer have to pay the $220 fee; however, they’ll still owe $43 annually to pay down the association’s debt. Michigan Gov. Gretchen Whitmer ordered an audit of the association following the most recent fee increase.
While changes to Michigan’s car insurance law don’t take effect until July 2020, there are things drivers can do now to prepare and save.
Drivers who build a history of continuous coverage indicate to insurers that they are responsible, lower-risk drivers, so they earn lower rates. If you’re able to buy insurance, be sure not to let it lapse — even for a day.
This affordable add-on coverage helps financially protect insured drivers if they’re in a crash with someone who is uninsured. It’s especially important in places like Michigan where there are a high number of uninsured drivers.
Insurers aren’t all the same when it comes to calculating rates and offering discounts. Compare car insurance quotes before you buy or renew your policy to help ensure you’re getting the best rate and the coverage you need. (Remember: You can switch insurance providers before the end of your policy term.)
Once the reform law goes into effect in July 2020, it’ll be a good idea to compare rates again. All car insurance providers in Michigan will adapt their pricing formulas to comply with changes in the law, so the company with the best rate for you may change.
Michigan car insurance rate data comes from The Zebra’s 2019 State of Auto Insurance Report, which analyzed 61 million unique rates to explore pricing trends across all United States zip codes including Washington, D.C. Analysis used a consistent base profile for the insured driver: a 30-year-old single male driving a 2014 Honda Accord EX with a good driving history and coverage limits of $50,000 bodily injury liability per person/$100,000 bodily injury liability per accident/$50,000 property damage liability per accident with a $500 deductible for comprehensive and collision.
*This report, originally published in October 2018, has been updated to reflect changes in Michigan's car insurance reform law.