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 change following Michigan’s passage of sweeping car insurance reform, which went into effect July 2, 2020. The new law makes major changes and, significantly, it eliminates the state’s requirement that all drivers buy unlimited, lifetime medical coverage for car accident injuries.
Here we take a look at the changes and the options now available to Michigan drivers.
This report explores:
Drivers in Michigan pay an average of $3,096 each year for car insurance — 100% higher than the national average rate of $1,548. 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 nearly a decade.
Up until July 2020, Michigan required all drivers to buy unlimited Personal Injury Protection (PIP) as part of their car insurance. This coverage guarantees many health and recovery benefits to injured drivers, including reimbursement for lost wages, in-home nursing care, and specialized medical treatments.
These unlimited benefits made Michigan’s car insurance coverage arguably the best in the country for those injured in car crashes. But there were expensive downsides. The system attracted costly medical claims, fraud, and legal battles among insurers, medical providers, and policy holders.
Over time, insurance companies raised rates for all drivers to account for those expenses. This created significant economic impacts across the state. Before the new law went into effect, Michiganders paid on average 4.8% of their incomes for car insurance, twice the national average of 2.4%.
Michigan lawmakers and drivers spent decades debating how to reduce the high cost of car insurance in the state. Now, change has finally arrived.
The following reforms went into effect on July 2, 2020, as the result of bipartisan legislation.
Lawmakers created additional 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.
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.
No. The law requires insurers to discount PIP insurance rates in total across all of their policyholders. That means individual drivers could see bigger or smaller discounts, depending on the insurance company and type of coverage.
Choosing a lower coverage limit can reduce the cost of your insurance — but if you’re in an accident, your auto insurance will pay for medical expenses only up to the limit you choose.
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.
Previously, drivers had 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 2, 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 can 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 2, 2020, Michigan banned: gender, marital status, occupation, education, zip code, credit score, residential status.
Insurers are still 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 2, 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 previously followed 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 2, 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.
A survey* of Michigan drivers by The Zebra in June 2020 showed that 64.3% were aware that the state's car insurance laws would change on July 2.
Of those drivers, 33.3% said they were satisfied with the changes made by state lawmakers, while 12.8% said they were dissatisfied. The majority of drivers — 53.8% — said they felt neutral about the changes, suggesting that many were reserving their opinions until they saw what happened to their own car insurance rates.
In fact, 60.3% of Michigan drivers said they planned to shop for car insurance at or before their next policy renewal once the law goes into effect.
Unfortunately, many drivers are also confused about what changes are actually being made. Only one in four drivers (26.2%) knew that they'd have to buy more bodily injury liability coverage as a result of the law. However, most (51.3%) understood that lawmakers had eliminated the unlimited PIP coverage requirement.
After all of these changes, drivers in Michigan have one big question: Will this finally reduce the high cost of car insurance?
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 may see some savings, but it's likely to be small. Drives can ask for less coverage, which provides fewer benefits, for additional savings.
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. The full impact of this change won’t be realized the medical fee schedule goes into effect starting in 2021.
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 drivers. After July 2, 2020, the fee will be reduced from $220 to $100.
Now that changes to Michigan’s car insurance law have taken effect, drivers can see their new options.
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 are allowed switch insurance providers before the end of your policy term.)
If you previously struggled to afford car insurance in Michigan, you may now have better options. Drivers who build a history of continuous coverage indicate to insurers that they are responsible, lower-risk drivers, so they earn lower rates. Once you 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.
All car insurance providers in Michigan will adapt their pricing formulas to comply with the law, so the company with the best rate for you may change. That means it's a good idea to compare rates now that the law is in effect. Insurers will continue to dial in their pricing formulas, so your potential savings could improve over time.
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 presents the findings of an anonymous online survey of 546 Michigan residents age 18 and older who own or lease a vehicle and are listed on a rental or mortgage agreement. Trap questions were included for quality control. The survey was conducted by independent research firm SurveyGizmo from June 4-5, 2020.
*This report, originally published in October 2018, has been updated to reflect changes in Michigan's car insurance reform law.