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Why is Michigan No-Fault Automobile Insurance So Expensive?

February 3, 2009 by Steven M. Gursten

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 Farmington Hills, 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.

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