Why Michigan Car Insurance Is So Expensive, Even as Rate Hikes Slow

Why Michigan Car Insurance Is So Expensive, Even as Rate Hikes Slow

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Why are car insurance rates so high in Michigan? The state's costly no-fault law is the key factor. Increase in car insurance rates has slowed dramatically in recent years, but Michigan drivers still pay the most for coverage, 270% more.

Insurers generally raise rates when the gap between what customers pay and what is paid out starts to shrink, which is usually attributed to heavy losses caused by frequent and severe claims.

Not only are insurance claim payouts in Michigan among the highest in the country, but they also primarily stem from no-fault/personal injury protection (PIP) claims. If not for Michigan's huge PIP payouts (even when compared to other no-fault states), it can be argued that the state's auto insurance rates would not be as high as they are.

The rise in Michigan's auto insurance rates slowed significantly since 2017

The largest insurance companies in Michigan have raised car insurance rates by an average of 13% since 2015. That's a significant slowdown after a 47% jump from 2011 to 2017.

Map shows how states compared for car insurance premium hikes since 2015

Why do some states experience higher rates than others? There are numerous reasons, but an insurer's profits on policies, often called loss ratios , play a big part. If companies see narrow or negative profit margins in a given market, they tend to raise rates there.

In Michigan, those ratios have dipped dramatically in recent years, from 136% in 2011 to 82% in 2020. This likely explains the slowing in the rise of prices.

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

When we looked into the causes of the high combined insurance payouts in Michigan, we found that a major portion of those losses stemmed from no-fault or PIP claims. Over the past decade, 45% of all auto insurance losses in Michigan were no-fault losses. That's significantly more than the 16% of average total losses that no-fault losses account for across the U.S.

A chart of how much of each no-fault state's insurance claims comes from no-fault claims

Why are Michigan's losses so much greater than everywhere else? It is likely driven by the fact that Michigan PIP has a minimum limit of $250,000. Higher PIP limits means higher payouts and thus higher losses.

No-fault losses likely driving force behind decline of Michigan rate increases

The slowing of Michigan's car insurance rate increases runs alongside some stability in terms of no-fault losses disappearing. From 2011 through the middle of 2016, that type of insurance cost Michigan companies 66% more than it was taking in.

In recent years, however, whether by increasing prices or fewer claims, those numbers have flipped. The combined loss ratios of those policies in Michigan are no longer more than 100%, meaning they're no longer losing money.

Year
No-fault CLR in previous year
Rate increase
2016119%4%
2017*136%6%
2018122%3%
2019126%3%
202076%-4%
202182%1%

The other components of auto insurance — liability, collision and comprehensive coverage — remained much more manageable for Michigan insurers. The combined loss ratio due to liability claims (those filed through bodily injury liability or property damage liability) in 2020 was 76.8% while the loss ratio from physical damage claims (collision and comprehensive) was 68.9%.

Why is car insurance so expensive in Michigan?

Car insurance is expensive in Michigan because the state has some of the highest minimum insurance requirements of any state. That means higher prices for more required coverage.

Michigan drivers pay an average of $7,161 per year for full-coverage insurance. That's 270% more than the national average and close to double the next most expensive state.

Michigan has some of the highest minimum-liability coverage requirements in the country and requires most drivers to carry at least $250,000 in PIP coverage.

Coverage
Limit
Bodily injury liability$50,000 per person/$100,000 per accident
Personal injury protection$250,000
Property damage liability$25,000 per accident
Uninsured/underinsured motorist bodily injury$50,000 per person/$100,000 per accident
Comprehensive and collision$500 deductible

Additionally, the state has a high percentage of uninsured drivers, more than 25%, which also raises insurance rates.

Methodology

We obtained financial information on no-fault loss ratios and rate increases for Michigan auto insurers in all states through the S&P Market Intelligence Tool. Data on uninsured drivers was from the Insurance Research Council.

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