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Why is Michigan No-Fault Automobile Insurance So Expensive?

Last week, Wayne State University’s Detroit Public Radio show The Back Story discussed Michigan’s ever rising car insurance rates, highlighting Gov. Jennifer Granholm’s new Consumer Insurance Advocate position filled by appointee Butch Hollowell. Hollowell is headed to Lansing to report on some startling auto insurance facts, such as 20 percent of Michigan drivers do not have car insurance. This is no surprise to Michigan no-fault insurance lawyers. Why? Because people simply cannot afford car insurance. Meanwhile, Michigan’s automobile insurance companies continue reaping record profits.

Independent Audit Finds AAA of Michigan, State Farm and Allstate Insurance Companies Amass Record-Breaking Profits

People always ask why the cost of insuring an automobile is so expensive in Michigan. Michigan Lawyers know a large measure of the blame belongs to the state’s no-fault automobile insurance companies. These car insurance companies blame the cost of insurance in cities like Detroit, which they say are more expensive to insure. The Chamber of Commerce likes to blame trial lawyers.

But an independent audit of the auto no-fault insurance industry ends this debate. The June 2007 study concludes that Michigan auto insurance companies have been gouging consumer while hoarding record-breaking profits for years.

The report was completed by an independent and highly respected auditor, Jay Angoff, the former insurance director for Missouri and New Jersey. It analyzed data filed with the Michigan Office of Financial and Insurance Services (OFIS) and the National Association of Insurance Commissioners (NAIC), regarding the three largest car insurance companies in Michigan: AAA, State Farm and Allstate.

The report says that the profits and surplus levels of AAA, State Farm, and Allstate reached record levels in 2006. AAA of Michigan had profits that more than doubled from 2002 to 2006, reporting profits of $104.2 million in 2006, compared to $50.9 million in 2002. The surplus (funds that AAA sets aside to pay hypothetical future claims) have swelled by another 68 percent, increasing to $1.53 billion.

The report concludes that all three Michigan auto no-fault insurance companies are making excessive profits. These claims have been vehemently denied by AAA of Michigan, State Farm and Allstate in the past, but have been nearly impossible to prove until now. A 2005 report by the state’s Office of Financial and Insurance Services reached a similar conclusion, finding that the auto no-fault insurance companies are “unusually profitable” in Michigan.

Ironically, the Michigan Supreme Court Kreiner v. Fischer decision — which has made it extremely difficult for people who have been injured in car accidents to collect money after an accident; drastically reducing the number of lawsuit filings, and subsequently, insurance industry payouts — has had no affect on the expensive no-fault insurance rates that the insurance companies charge. The Chamber of Commerce has been unable to explain why, especially since lawsuits and claims are dramatically down in Michigan while insurance premiums have remained the same or increased.

Call for Michigan Insurance Company Reforms

Angoff’s independent audit arrived at a time when many consumers are questioning, “If the pay-outs have been slashed, why are auto no-fault insurance rates continuing to rise?” There have been several bills introduced in recent years aimed at restoring common sense to Michigan’s auto accident laws. Of course, the insurance industry and the Chamber of Commerce have fought these proposed reforms, arguing that any fix would raise already expensive insurance rates to even higher levels.

The report finds this contention clearly untrue.

When asked for comment, Pete Kuhnmuench, executive director of the Insurance Institute of Michigan, did not apologize to the Michigan Legislature, instead he said, “When GM or Google makes a profit, we celebrate it. Profit is not a dirty thing, it’s a good thing.”

Maybe so, but Michigan law does not require people to purchase GM cars or Google stock, or punish them with civil fines and criminal misdemeanors when they choose not to buy. In Michigan, every driver must pay for basic auto no-fault insurance to cover their car or truck.

The Angoff report states the reason the Michigan insurance industry has achieved such massive profits is lack of supervision, and the dismantling of the state’s ability to regulate insurance companies that occurred during the Engler administration. The report strongly calls for further reforms, such as empowering the Michigan Insurance Commissioner to regulate car insurance rates and punish companies for excessive overcharges. This includes the practice of red-lining, or driving up rates based upon address and credit history.

For example, the rate for basic car insurance with Allstate for a consumer who lives in Kalamazoo, Michigan is roughly $1,821. The rate jumps 241 percent if the same driver lives in Detroit. With AAA of Michigan, the rate jumps 251 percent. With State Farm, the rate jumps the most, totaling 365 percent more for a Detroit resident.

Michigan is one of the only states remaining that allows insurance companies to legally charge different rates and higher insurance premiums for people who have bad credit, low-status jobs and limited education. It’s also one of the last states to let insurance companies use criteria other than a person’s driving record to determine insurance rates.

The no-fault insurance lawyers of Michigan Auto Law are working to make insurance companies in Michigan more accountable, and to help auto accident victims get the help they need. How do you feel about your insurance rates, or how your insurance company treats you?

Related information:

10 Worst Michigan Insurance Companies

Protect Yourself with Uninsured and Underinsured Motorist Coverage

Helpful Michigan No-Fault Statistics

Michigan Car Accident Lawyer Resource Center

Michigan Auto Law exclusively handles car accident, truck accident and motorcycle accident cases throughout the entire state of Michigan. We have offices in Southfield, Detroit, Ann Arbor, Grand Rapids and Sterling Heights.

Steve Gursten is recognized as one of the nation’s top experts in serious car and truck accident injury cases and automobile insurance no-fault litigation. Steve has received the largest jury verdict for an automobile accident case in Michigan in four of the past seven years, including 2008. For more information about Michigan Auto Law, please read our law firm quick facts.

Posted in: Car Insurance, No Fault Reform.

11 comments on “Why is Michigan No-Fault Automobile Insurance So Expensive?

  1. It is a rip off, these insurance companies are getting rich! At the expense of the middle class and poor! I am with AAA and because of laid off, poor credit and where I live I have to pay 2200 a year for a 2005 Taurus! No tickets since 1987, and that was a prohibited Left turn! I did have a accident in 2008 on a icy overpass and they totaled my truck! After I dropped the insurance from it it didn’t drop! I am still paying the same for the car and truck, and only have the car! Is there something I am missing here!

  2. Steve Gursten on said:

    Bill,
    he most important thing you can do to properly insure your car is to make sure you have the right coverages, then shop on price, not the reverse. For instance, you should carry a minimum of $100,000/$300,000 of Bodily Injury (BI), Uninsured Motorist (UM) and Underinsured Motorist (UIM) coverages. You should also make sure that your No-Fault (PIP) coverages. The correct PIP coverage depends on whether you have existing health insurance, and if so, what kind of health insurance you have (i.e. PPO, HMO, Medicare, Medicaid, Veterans Administration Benefits, etc) as well as whether you have short term or long term disability benefits through your employer. You must also evaluate whether you need collision coverage, based on the age and value of your car.

    Once you have selected the appropriate coverages, you should consult with an independent insurance agent. Independent agencies can often represent several different insurers and can run your insurance requirements through all of them to get the best price for you.
    Additionally, many insurance companies offer reduced rates if you home and car(s) are insured by the same company. Many of the insurers represented by independent agencies are not big advertisers, but you don’t need to be insured by a big-name insurer or big advertiser to be properly insured.

  3. bill williams on said:

    The wholesale corruption of the state government/auto insurance industry partnership in Michigan, resulting in the oppression of the lower/mid income population of this state, does not warrant the air of legitimacy it garners by discussing it in reasoned terms. This is classic fat-cat, back room pay-off criminality. A LOT of people are being hurt.
    The reform that I would subscribe would be straight from Robespierre. Seriously!

    No, seriously!

  4. Steven M. Gursten on said:

    Robespierre once famously said never to leave to chance what can be achieved by calculation. You can bet the insurance companies have done exactly this, and realize the incredible profits they will make under this new la; as millions of dollars are shifted to you and I as taxpayers and to Medicaid to pay for what the insurance companies used to cover. And note that all of this is being done without any guarantees of savings – not even one dime – to Michigan citizens in the form of lowered auto insurance premiums.

  5. face it the insurance companies are probably giving the government kickbacks..why you think people leave michigan, poor support for the people because the fat cats keep getting richer.

  6. I moved away from Michigan in 1997 and returned in 2008 and let me tell you I was shocked at how much I am being charged for insurance. I pay 3X more for my insurance in Michigan than I have in other states. My monthly insurance payment is as much as some people’s car payment.

  7. Sam Oleksy on said:

    Michigan has the highest average car insurance rates in the nation, followed by Louisiana and Oklahoma, according to Insure.com’s new national survey of car insurance premiums. What can average citizens do about this thieving system?

  8. Economics must not be a requirement for a law degree. This has nothing to do with “the greedy insurance companies” and everything to do with forcing people to cover those that don’t have insurance. We get to pay for our own insurance plus insurance for everybody on the road that won’t pay for their own.
    The simple fix to this is: if someone is pulled over and doesn’t have insurance, take their car.
    In an earlier article this author stated something to the affect that $143.50 is not that much money to cover the cost of lifetime medical for an accident victim. I don’t know what his income is, but that is A LOT of extra money we are forced to pay for someone else’s negligence!

  9. Steven M. Gursten on said:

    Sam, I wouldn’t call it a thieving system. I would call it thieving auto insurance companies who conspire together and charge way too much – and far more than is reasonable – for auto insurance in this state. The problem is made far worse because Michigan is one of the only states where our insurance commissioner doesn’t have the power to stop insurance companies from overcharging.

  10. Steven M. Gursten on said:

    And being polite is clearly not a requirement for people wishing to comment on this blog, Kim.

    If it helps, I do have a minor concentration in business from the University of Michigan. But let’s get to substance: your proposed solution might strike some people, say anyone, as being a bit harsh and rather draconian. As you point out later with the $143.50, the vast majority of people who drive without auto insurance do so because they are under dire economic pressure, not because of a desire or willingness to break the law. Taking away the car of these same people who are already struggling seems akin to something that Inspector Jabert would do to Jean Valjean from Victor Hugo’s Les Miserable, ie 20 years in prison for stealing a loaf of bread. You perhaps aren’t known for your empathy towards others?

    And I stand by my comment about the $143.50, which you seem to be deliberately misreading – not only is it the $143.50 a great bargain and unbelievable deal for Michigan citizens, but show me anywhere else where people can get that kind of guaranteed lifetime coverage for necessary medical care for anything remotely around that amount of money? You go to visit your doctor one time – one time! – and you might get a $143.50 copay sent to your home the next day. But in Michigan, for $143.50, you are guaranteed a lifetime of vital protection and care that is unmatched anywhere else in the United States.

  11. Barbara Moore on said:

    Single woman driving for 30 years, no accidents. Allstate wanted $3700.00
    per year. My credit score is average. This is twice what I am now paying.

    Where are our Michigan legislators?
    Where is the Governer?

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