Owning a car is expensive, especially when you have to pay for insurance.
Insurance rates differ based on the company and state in which you live.
Those who live in Michigan tend to have expensive car insurance prices.
If you have a high car insurance policy in Michigan, you may wonder why it’s more expensive there than in other states.
Why Is Michigan Car Insurance So Expensive? (10 Reasons)
When shopping for car insurance in Michigan, you’ll see two average prices.
The average cost of Michigan car insurance for full coverage is $2,345 a year.
The average cost of Michigan car insurance for minimum coverage is $946 a year.
Certain factors like Michigan’s requirement to have no-fault insurance, high rates of fraud, and certain variables that make Michiganders more prone to accidents increase the price of Michigan car insurance.
1. Offers No-Fault Insurance System
One of the reasons why Michigan car insurance is expensive is because it has a no-fault insurance system in place.
This means that all insurance companies that operate within Michigan have to provide no-fault insurance policies.
No-fault insurance is different from other types of insurance policies such as comprehensive, collision, and liability insurance.
The primary aspect that makes it stand apart is its emphasis on no-fault help.
With no-fault insurance, all your expenses get paid by the insurance company regardless of who is actually at fault.
Your specific policy may put a limit on how much your insurance covers, but the result is the insurance companies pay expenses no matter if the accident was your fault, the other person’s fault, or both of your faults.
This makes car insurance expensive because it means insurance companies usually have to spend more money.
Since they cover all expenses, which also usually include loss of income due to an accident, they could end up covering hundreds of thousands of dollars.
To ensure they can still make a profit after covering those expenses, insurance companies charge policyholders high rates.
The high rates ensure that the company can get the pool of funds it needs to cover those expensive bills while also still making a profit.
Michigan car insurance is expensive because it has a no-fault insurance system.
2. Expensive Personal Injury Protection Requirements
Another reason Michigan car insurance is expensive is that it has expensive personal injury protection requirements for insurance companies.
To provide insurance in Michigan, insurance companies need to be able to provide a certain amount of money to their policyholders no matter what policy they have.
That limit differs based on several variables.
Michigan requires insurance companies to make that limit relatively high.
That means insurance companies end up paying a lot of money for their policyholder’s expenses.
For example, some companies in other states may pay up to $50,000 in medical costs and other expenses related to the accident for a policyholder.
In Michigan, that limit may be $100,000.
As such, the insurance company pays up to $100,000 in medical costs and other expenses related to the accident.
While it all comes down to what policy you sign up for, the state of Michigan requires its insurance companies to provide a higher limit than some other states.
This makes insurance expensive in Michigan because it means insurance companies are going to be looking for a way to offset that cost.
Using the example provided above, $100,000 is a lot of money to spend.
That’s especially true for a company that has thousands, if not hundreds of thousands, of policyholders.
If even a handful of them all end up with expensive medical costs following an accident, they could end up making the insurance company spend millions of dollars.
To make business less risky, insurance companies end up putting high rates on their policies.
As a result, Michigan car owners pay high insurance premiums to have car insurance.
3. High Rates Of Fraud
Michigan also has high levels of fraud in insurance, and car insurance is one of the highest places where fraud occurs.
There are two main methods that people use to commit fraud with car insurance companies.
The first is by staging an accident, then going to the hospital with phantom pains.
They’ll cause the accident, deliberately, with an accomplice and then take photos of it.
The pain they experience at the hospital isn’t as severe as they make it out to be, but they get treated and receive an expensive medical bill.
The insurance company then has to pay it even though they weren’t injured.
The person who staged the accident then takes the money.
The other way people commit fraud with car insurance is by building up their injuries.
Buildup is a term that refers to when an individual claims that their injuries are worse than they appear.
This is usually when whiplash or sore muscles occur.
Because doctors have a difficult time disputing it, they treat the patient as best they can.
The patient gets the bill, and then uses the money given to them by the insurance company for their own purposes.
Fraud makes car insurance expensive because it requires insurance companies to take more expensive measures to protect themselves.
The first is by having high rates.
People who commit fraud are less likely to sign up for insurance if it’s expensive.
The money they get by committing fraud isn’t always worth it.
Another way they protect themselves is by hiring more fraud investigators.
That adds cost to their operations.
To cover those costs, the insurance company has to use higher rates to earn higher revenue.
Finally, it makes them lose money needlessly.
They need to charge more to get that money back.
Michigan car insurance is expensive because it has high cases of fraud.
4. Lots Of Uninsured Drivers
In 2019, Michigan came in second for having the highest number of uninsured drivers.
That percentage came to 25.5%.
Nearly a quarter of the state doesn’t have car insurance.
This impacts the price of insurance in a big way.
Insurance companies rely on having a large number of policyholders to stay in business.
They can’t afford to cover various bills otherwise.
The amount that a person pays each month isn’t going to be enough to sustain the company if only a few people pay it.
That’s because they have to put a pool of money together that covers expenses while also paying their employees and investing in themselves.
When a lot of people don’t have car insurance but still get their expenses paid through some policies, it only further adds to their deficit.
To make up for that, insurance companies end up putting higher rates on those who do have car insurance.
This ends up becoming a catch-22, however.
Because car insurance rates are higher, fewer people can afford it.
As such, they end up canceling their policy and risk driving without insurance.
Then that requires insurance companies to raise rates even further because fewer people have it.
Michigan car insurance is expensive because a lot of people drive without it, and insurance companies raise prices to make up for the loss of clients.
5. Lawsuits Against Auto Insurers
Another reason Michigan car insurance is expensive is that there are frequent lawsuits against auto insurers.
When someone files a lawsuit, they’re usually looking to do so to earn a good amount of money.
People know that suing each other doesn’t always land them enough money to be worth it.
By the time they pay court fees, they may end up in the negative rather than having earned anything.
As such, when a lawsuit occurs, it’s usually aimed at companies with a lot of money.
A lot of lawsuits, thus, end up going against the car insurance companies, themselves.
While they may not always lose, it still costs the insurance company money.
They may have to settle which usually means they end up paying a good amount of money to the person suing them.
It also means they have to pay their own court fees.
It essentially adds more costs to the business that they need to offset.
It makes providing insurance risky in Michigan.
To lower the risk, car insurance companies have to put high prices on their premiums.
The high premiums help them cover lawsuit settlements and court fees.
Since lawsuits can bite into their profits, insurance companies want to stay above the water.
To do so, they have expensive prices on their policies.
Car insurance in Michigan is expensive because of frequent lawsuits against insurance companies.
6. Short Time To Process Claims
One of the reasons that car insurance fraud is common in Michigan is that insurance companies usually don’t have a lot of time to process claims.
According to Michigan law, insurance companies have to process your claim in 30 days.
By that time, they need to make you aware of any documentation that you need to provide to them.
Once they receive that documentation and claim that it satisfies their needs, they have 30-60 days to pay the claim, depending on the policy in question.
If they fail to do this, they end up paying you even more money.
In particular, they have to pay 12% interest on the amount that’s due.
This is to encourage insurance companies not to waste their client’s time.
It also helps protect the client from insurance companies who may be trying to scam them.
The problem with having such a short window to process a claim, however, is that it leads to higher incidents of fraud.
Insurance companies may not be able to use all the resources they want to fully investigate a claim.
As such, since they’re rushing through it, there’s a greater chance of missing something that might indicate that the claim is fraudulent.
Since it puts the insurance company at more risk, they charge higher premiums for their insurance.
Additionally, to process claims as quickly as the law demands, insurance companies need enough workers on hand to do so.
That might mean that the insurance company has to hire more people if they get an increase in policyholders.
Since they’re hiring more workers, their labor costs are higher.
That also means that they need to have higher premiums to cover those costs.
Car insurance in Michigan is expensive because the state has a short window in which to process a claim.
7. Repairs Are More Expensive
Another factor that makes Michigan car insurance expensive is that repairs are more expensive these days.
Cars are more sophisticated than ever.
They have high-quality engines, sophisticated software, and several moving parts that earlier models didn’t have.
Some cars even need specifically trained mechanics to work on them.
There are also new cars emerging on the market like hybrids and electric cars.
Those have expensive parts, too.
Since their parts are expensive, you can expect that their repair bills are also going to be expensive.
That means that insurance companies are spending more money on repair bills.
Because it costs them more, they need to ensure that their premiums cover those costs.
Cars are also lasting longer.
That means they end up needing more repairs over the course of their lifetime.
As a result, insurance companies are paying more for older cars than they normally would.
That further adds to their cost of business which requires offsetting.
Michigan car insurance is expensive because repairing costs is expensive.
8. More Accidents
Car accidents are also on the rise in Michigan.
2021 saw a 15% increase in car accidents from 2020.
Part of the reason is the pandemic.
Law enforcement had to limit how much they interacted with citizens.
This meant that they were a bit laxer about speeding cars.
Unfortunately, this reinforced some bad behavior in certain individuals.
They got used to being able to drive at fast speeds.
With the lockdowns over, it means more people are back on the roads.
With people speeding, it leads to a higher incidence of crashes.
Fatal crashes are also on the rise.
They increased by 4% from 2020.
This makes car insurance more expensive because it means insurance companies are paying more out due to the larger number of accidents.
When insurance companies have to pay more expenses, they need to have more money to continue to cover those expenses.
Otherwise, they face bankruptcy.
To get that money, they have to charge high premiums.
Car insurance in Michigan is expensive because of the higher counts of car accidents.
9. High Healthcare Costs
The cost of medical care in Michigan is also high.
With better doctors, technology, and care comes higher costs.
This means that those who need medical care following a car accident are going home with expensive bills.
Since insurance companies need to cover those bills, they’re finding themselves paying higher expenses.
High medical costs require insurance companies to increase their premiums.
Michigan car insurance is expensive because of high healthcare costs.
10. Severe Weather
A final reason car insurance is expensive in Michigan is due to severe weather.
The winters in Michigan can be harsh.
With slick roads, accidents are common.
The weather can also damage cars on its own.
Even something as simple as salt on the roads can start to corrode a car.
Because Michigan experiences severe weather, it means there are higher incidents of car accidents than in places that don’t experience as much severe weather.
Insurance companies have to account for the role that severe weather plays in car accidents and car repairs.
hose companies place expensive prices on their policies as a result.
Car insurance in Michigan is expensive because the state deals with severe weather.
Michigan car insurance is expensive for a lot of people in the state.
Due to higher incidents of crashes, expensive repairs, and Michigan law, car owners in Michigan face high car insurance rates.