No matter where you live car insurance rates keep increasing. A recent report showed a 14% annual increase in car insurance costs across the country in 2022. The average annual cost of insurance for a car is now $2,014. In many states, like Michigan, the cost is much higher. In 2019, Michigan made drastic changes to the Michigan no-fault law that was supposed to decrease the astronomical cost of car insurance in the state. Instead, car insurance rates have not decreased, something our Michigan car accident lawyers see daily.
Buy why is this happening? The auto insurance industry always blames “the trial lawyers” for filing to many lawsuits. But this is not an accurate analysis and just ignores basic metrics. Although the number of lawsuits have increased in the past decade, the number of auto accident lawsuits filed by individuals across the state has actually plateaued in the last few years. In many counties, the number of auto accident lawsuits have actually fallen.
In reality, there are multiple reasons for the continued increase in car insurance rates in Michigan.
Inflation Has Picked Up
The biggest factor in the increase in the cost of car insurance is inflation. The overall cost of goods and services have increased dramatically since coming out of the pandemic. Inflation has increased across the board. In fact, we are experiencing some of the highest inflation rates in decades.
Supply chain issues and the increase in material costs have made vehicle repairs more expensive. The cost of replacement parts, shipping, inventory, and other items that go into fixing a car after a wreck have all gone up. Repair shops and dealerships have seen a large increases in their labor and unit costs. Michigan drivers who have had to have their care repaired after a crash are not immune. And this is getting passed on to consumers.
Healthcare Costs Keep Increasing
When a person gets auto insurance in Michigan, in almost all cases they also purchase first-party PIP coverage. This is known as personal injury protection. PIP coverage is basically medical coverage for auto accident-related injuries.
Most individuals must purchase at least $250,000 in PIP coverage. This means that the car insurance company must pay for medical bills and costs not covered by health insurance up to the PIP coverage limit.
And the cost of medical care keeps going up. As we know, every year the cost for physical therapy, medicine, hospital stays and surgery increases. And this means more PIP money is paid out to medical providers following a crash.
Car Insurance Companies Are Making More Money
What is interesting is that since the 2019 no-fault reform, auto insurance carriers are making a lot of money from PIP coverage. Before 2019, most car insurance carriers were paying out more money in first-party PIP claims then they were making from premiums. This was because there was no cap on PIP. It was unlimited.
In addition, medical providers like hospitals and doctors could charge a “reasonable and customary” rate. Often, auto carriers would reimburse hospitals and MRI centers at much higher rates compared to Medicare or private insurance like Blue Cross or HAP.
But starting in 2019 and with further changes in 2020, auto insurance carriers got a fee schedule in place to greatly decrease the amount they had to pay doctors and hospitals for car accident care. This fee schedule or fee cap is less than 200% the cost of a Medicare reimbursement. This is an enormous drop in payouts for the car insurance industry, who were paying out many multiples of that before the 2019 law change.
According to Value Penguin, profitability flipped for the auto insurance companies starting in 2020. That year PIP coverage went from unlimited medical to PIP choice, which allows people to purchase capped amounts of PIP coverage. PIP choice, along with the fee schedules that started in 2021, greatly decreased the pay-out ratios for insurance carriers in Michigan. What was once a money loser, PIP coverage has now become a profit center for the auto insurance industry.
| Year | No-fault CLR in previous year | Rate increase |
| 2016 | 119% | 4% |
| 2017 | 136% | 6% |
| 2018 | 122% | 3% |
| 2019 | 126% | 3% |
| 2020 | 76% | -4% |
| 2021 | 82% | 1% |
Because of PIP coverage caps and fee schedules, car insurance companies in Michigan are now raking in profits from PIP coverage. But these cost savings are not getting passed onto consumers. Instead, many car insurance companies are keeping the difference, reaping greater profits at the expense of customers.
PIP Coverage May Be Flat, But Everything Else is More Expensive
As part of the Michigan no-fault reform in 2019, insurance carriers were required to decrease the costs of PIP coverage. But they have managed increased the total cost of auto insurance using slight-of-hand tricks. They can do this because car insurance is made up of different coverage plans.
PIP coverage is just one form of coverage. Other coverages like bodily injury (which covers you if you cause the crash), collision (vehicle repair), comprehensive (damage due to weather or theft) and property damage also make up your total car insurance bill.
And it’s these rates that have increased too much make up for the “drop” in PIP rates. According to the Consumer Federation, two companies did raise the PIP portion of their rates in 2022, although the rest kept it about the same, However, most companies also raised rates for two other portions of driver policies – bodily injury and comprehensive. Collision coverage rates also went up for most companies. This resulted in a total increase in car insurance prices for most drivers.
Car Insurance Rates Depend on Different Factors
Besides inflation, the cost of car insurance in Michigan will depend on different factors. For example, the age and model of a vehicle, the city of residence, the person’s driving record and the number of drivers all factor into the cost.
Although car insurance companies are not permitted to redline, or base the cost of insurance on a zip code anymore, there is little doubt this is still being done in some way. This practice hurts our most economically disadvantaged citizens. People with fixed income or low income end up paying the most for auto insurance.
How Credit Score Increases Michigan Car Insurance Rates
Car insurance companies have utilized credit scores when setting insurance rates for years. The use of credit scores in determining underwriting has only grown in importance. One recent study found that people with poor credit paid 91% more on average for car insurance than individuals with excellent credit scores.
Car insurers like State Farm or Farm Bureau will explain there is a direct correlation between a person’s credit score and their likelihood of filing an insurance claim. However, the methodology behind this explanation has always been debatable.
What isn’t debatable is poor credit can make getting car insurance next to impossible for many motorist throughout Michigan and the country in general. But is this fair? Credit scores are devised using a host of different variables. For example, people who have no debt and don’t use credit cards tend to have a lower credit score than individuals with plastic in their wallets. Others with too many credit cards also get penalized, no matter if the bills are paid on time.
Where you live also makes big difference. Living a mile away from a person with the exact same qualifications and driving record can mean the difference in hundreds of dollars – simply because of your zip code. The Consumer Federation of America reported that for GEICO, a factory worker with just a high school diploma would pay 90% more for car insurance than an attorney with the same driving record.
Studies have also shown credit-scoring disproportionately disfavors minorities and the poor. The use of “redlining” has plagued drivers in urban areas of Michigan, including Detroit and Flint, for years. Three states – California, Massachusetts and Hawaii – currently ban insurance companies from considering credit scores when setting auto insurance rates.
Legislators in Michigan have recently tried to ban the practice of redlining motorist based on their home residence, but insurance backed politicians killed the proposals.
What’s perhaps even more disturbing is insurance companies are now analyzing all sorts of new available data to predict whether a specific individual is more likely to make a claim. For example, insurance companies look at your recreational activities and even your shopping habits when determining car insurance rates. Looking at credit scores is only the beginning.
Given this reality, what can we do? Well, first its best to try to increase your credit score. The fastest way to achieve this is to pay your bills on time, not borrow too much on an individual credit card every month, limit the numbers of credit cards and try to limit the types of credit you have in general (student loans, mortgages, auto loans, etc.)
How Much Have Car Insurance Rates Increased in Michigan?
According to the Consumer Federation of America, in 2022 car insurance rates in Michigan increased by 7.2%. The actual increase for 2022 by each insurance carrier is found here. As the data shows, every single car insurance company in Michigan increased rates in 2022. Some carriers, like Allstate and State Auto, saw a double-digit increase.
The biggest seller of auto policies in Michigan is State Farm. That company increased rates by 7.8%, resulting in an increase of over $123,000,00. The second larges carrier in Michigan is Progressive, which sells a lot of policies in urban areas like Detroit, Flint and Grand Rapids. They increased car insurance rates by 8.7%.
Call The Best Car Accident Lawyers for Answers
If you have any questions about car insurance, or a friend or loved one has been injured in a car crash, call our office today. All consultations are free and we never charge a penny until we win your case. Call us today at 1-800-LEE-FREE or 1-800-533-3733. We are here to help.
