The Michigan No-Fault Law and Rising Auto Insurance Rates

Since 2011, Michigan has experienced the second highest auto insurance rate increases of any state. Across the state's largest insurers, rates have risen an average 47%--almost double the national average of 25% and slightly less than the highest, 54% in Georgia.

Why are rates increasing so much in Michigan? It may be due to the state's costly no-fault law. 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 losses in Michigan among the highest in the country, they primarily stem from no-fault/PIP claims--even when compared to other no-fault states. If not for the huge PIP losses, it can be argued Michigan auto rates would not be increasing the way they are.

Michigan: 2nd Highest Auto Premium Increases Since 2011

The largest insurance companies in Michigan have raised rates an average 47% since 2011. Georgia was the only other state to experience higher rate hikes.

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

Why do some states have higher rate increases than others? There are numerous reasons, and the key factor is insurer's loss ratios in each state. If most companies are turning in narrow, or even unprofitable margins, they tend to raise rates in that state. In Michigan, the auto insurers have posted an average 114% combined loss ratio since 2011. What that means is they paid out, or lost, nearly 14% more than they earned since 2011--by far the highest in the nation and much greater than the state by state average of 79%.

Most of Michigan Auto Losses Are Coming from No-Fault Losses

We investigated what was causing the high 114% combined loss rations within Michigan, and found that a major portion of losses were caused by PIP claims. Since 2011, 62% of all auto insurance losses in Michigan came from no-fault losses. That is significantly greater than the 18% no-fault losses usually take up in a state (13% excluding Michigan).

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--losses have been much more manageable to Michigan auto 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, meaning if not for the PIP losses, Michigan auto losses would likely fall closer toward the national average instead of being significantly higher.

No-Fault Losses Are Likely Driving Force Behind Rate Increases

While liability and physical damage insurance have normal ratios, the average combined loss ratio for no-fault claims was 166% in Michigan. 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 84.3% average ratio in other no-fault states. When the state has a particularly bad year, as it did in 2011, 2012 and 2013, their rate hikes generally follow that magnitude.

YearPre. Year's No-Fault CLRMichigan Rate Increase Per Year
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.

Mark is a Senior Research Analyst for ValuePenguin focusing on the insurance industry, primarily auto insurance. He previously worked in financial risk management at State Street Corporation.

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