The Michigan No-Fault Law and Rising Auto Insurance Rates

The Michigan No-Fault Law and Rising Auto Insurance Rates

Since 2011, Michigan has experienced the second-highest auto insurance rate increases in the country. The state's largest insurers have raised rates by an average of 47% — almost double the national average of 25% and only slightly less Georgia's 54%.

Why are rates increasing by so much in Michigan? The state's costly no-fault law is likely one key factor. Insurers generally raise rates when they see profits dwindling, which is usually attributed to heavy losses caused by frequent and severe claims.

Not only are insurance losses in Michigan among the highest in the country, they primarily stem from no-fault/PIP claims. If not for Michigan's huge PIP losses (even when compared to other no-fault states), it can be argued that the state's auto insurance rates would not be increasing as much as they have.

Michigan saw the second-highest increase in auto insurance premiums since 2011

The largest insurance companies in Michigan have raised car insurance rates by an average of 47% since 2011. Only Georgia experienced higher rate hikes.

Map shows how states compared for car insurance premium hikes since 2011

Why do some states experience higher rate increases than others? There are numerous reasons, but an insurer's loss ratios in each state play a big part. If a company sees narrow or negative profit margins in a given market, they tend to raise rates in that market.

In Michigan, auto insurers have posted an average combined loss ratio of 114% since 2011. What that means is the insurers paid out nearly 14% more in claims than they collected in premiums since 2011 — by far the highest in the nation and much greater than the state-by-state average of 79%.

Most auto insurance losses in Michigan come from no-fault losses

When we looked into the causes of the high combined loss ratios in Michigan, we found that a major portion of those losses were caused by no-fault or "PIP" claims. Over the past decade, 62% of all auto insurance losses in Michigan were no-fault losses. That's significantly more than the 18% of total losses that no-fault losses account for in the average U.S. state.

Michigan Auto Insurance Losses
Michigan Auto Insurance Losses

Why are Michigan's losses so much greater than everywhere else? It is likely driven by the fact Michigan PIP is unlimited. Unlimited limits leads to higher payouts thus higher losses. The states with minimum limits greater than $10,000 for the most part have the greatest losses when it comes to PIP.

The other components of auto insurance — liability, collision and comprehensive coverage — have been much more manageable for Michigan insurers. The combined loss ratio due to liability claims (those filed through bodily injury liability or property damage liability) was 79.7% while those from physical damage claims (collision and comprehensive) was 77.3%.

Both of those values are around the national average. That suggests that without the PIP losses, Michigan's auto losses would likely fall close to the national average.

No-fault losses are the likely driving force behind MI rate increases

While liability and physical damage losses in Michigan are close to average, the combined loss ratio for no-fault claims was 166%. That is, insurers were losing 66% more from paying claims than they were earning revenue from writing PIP insurance. The 166% ratio is nearly double the 84% average ratio in other no-fault states. When the state has a particularly bad year, as it did in 2011, 2012 and 2013, rate hikes grow even larger.

Year
No-fault CLR in previous yr
Rate increase
2012251%12%
2013222%9%
2014184%6%
2015125%4%
2016119%6%
2017*130%4%

*Until May 2017

Methodology

We obtained all the statutory financials for auto insurers in all states from SNL Financial. We were able to see loss data for No-Fault, Liability, Physical Damage losses dating back to 2011 for over 400 insurance companies in each state. All data on rate hikes within a state was obtained from RateFilings.com dating back to 2011.

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