Why is Auto Insurance So Expensive?
Michigan’s average annual Premium for 2018 was $2,394 which is $1,076 higher than the national average. This seems like an exorbitant amount of money to pay for insurance, but really those costs are born out of the practical setup of Michigan’s no-fault insurance scheme.
Reasons for the Higher Costs
These are some of the main culprits for the higher costs of car insurance in Michigan:
- Michigan’s PIP (No-fault law) guarantees unlimited lifetime medical benefits. No mater what the costs of your medical bills, they will be paid for life so long as they are related to the accident and reasonable and necessary to treat your injuries. Your insurance company must the first $550,000 in these unlimited medical benefits. After that dollar amount is reached the Michigan Catastrophic Claim Association (MCCA) covers the medical expenses that you need. The MCCA charges $170.00 per year per policy to help defray the costs that come with having to pay over and above your own insurance company’s responsibility.
- Another cost is associated with densely populated cities like Detroit, Grand Rapids, and Ann Arbor. In those cities there is more theft, more collision, more fraud, more injuries, more uninsured drivers, and more claims in general. Part of our costs come from having to spread that risk throughout all drivers that may or may not live in those types of areas.
- Another associated reason, as mentioned above, is uninsured drivers. It is estimated that up to 21% of drivers in Michigan don’t carry insurance. In a no-fault system like ours, that means your insurance costs increase to cover the costs of those uninsured drivers when claims are made.
The Real Reason for Higher Costs
But the main reason we have such high rates of auto insurance in Michigan boils down to one fact. We have one if not the most comprehensive no-fault laws in the country. This is good news if you are seriously injured and your insurance company follows through by paying you what you are owed under our law. These no-fault or first party benefits are:
- Unlimited medical bills paid for life as long as those bills are reasonable, necessary, and are related to the accident
- 85% of your lost wages for the first 3 years after the accident
- Life time Attendant Care to pay for someone to help you after a serious injury which includes things like help with showering, getting dressed, administering home care, changing bandages, and supervision. Insurance companies must pay this if it is needed, and it can be for as much as up to 24 hours day.
- Replacement services which means that your own insurance company must pay someone up to $20 a day to do chores around the house that you can no longer perform like laundry, dishes, mowing, and making meals.
- Mileage to and from your doctor’s appointments.
Again, these are all benefits that you are owed even if the accident was your fault. Irrespective of the fact that you might have hit a tree or a drunk driver t-boned you by running a red light, under the law, you are entitled to these same benefits. Obviously, all these things are expensive to insure. If you never get in a car accident, then you are going to front the bill and get the worse end of the deal. However, if you do receive injuries from an automobile accident these things should be waiting for you regardless of whether you were at fault.
The situation is exactly like having a good medical insurance policy. If you use it and need it, it will be worth its weight in gold. However, if you don’t, you’re going to be over paying. The State of Michigan has mandated that we all use this system. Frankly, the fact that its pricey doesn’t mean it doesn’t work, it just means that you are substantially reducing your financial risk in case of a serious car accident, and in turn paying more for it.
But Is it A Good Deal?
What if you don’t want that deal? Is there an answer to lowering costs? Insurance company’s want to sell you on the idea if we just capped benefits this would drastically reduce costs. I don’t think this is the case. As stated already, insurance companies are only on the hook for the first $550,00 and they rarely ever pay that. Anything above that gets spread around by the MCCA which only costs a $170 a year to policy holders. This proposition to introduce caps of say $250,000 or $300,000 etc.. is really just a game allowing the insurance companies to have their cake and eat it to. They get all the benefits of the no-fault scheme and then get to reduce their own risks which would likely translate to marginal savings to the consumer. There is no real chance that insurance companies would reduce rates with these caps when they hardly reach the proposed caps as it is.
The true reform would be to abolish the no-fault law all together. This seems like it could be a good idea but we have to look at the positives along with negatives. On the positive side justice seems to prevail. I don’t know how many calls I get from angry people who can’t believe that their own insurance has to pay when some other jerk totaled their car or sent them to the emergency room. Without no-fault, the at fault person or their insurance company would be one to pay the costs and damages as a result of an accident. This is the way it should be, the guilty pay for what they have done. However, this may not be a good result depending on the type of accident you get in. In Michigan, the minimum amount of insurance deemed legal is $20,000. If you get seriously injured by a person with a $20,000 policy, that $20,000 has to pay for your medical bills, your lost wages, your vehicle damage, your pain and suffering and any other type of damages that you could possible recover.
Nowadays it isn’t uncommon for emergency room bills and ambulance charges to come to more than $20,000. So if you are even marginally injured you would never be adequately compensated under that type of situation. You might even end up going into debt just to pay the medical bills that some other SOB caused you to incur. So, making the culpable pay for the damage that they have caused, while making infinitely more sense in the eyes of justice, can yield ruinous financial results for victims in the practical world. This is why No-fault in many cases is better for those injured in a car accident. However, it is more expensive, and it can be extremely frustrating when you don’t ever need the protection and safely net that the law provides. This is an on-going debate and as long rates continue to rise, Michiganders will argue and fight about whether the benefits out way the costs in our No-Fault System.
We Can Help
If you have any questions about your rights after an accident, please let one of our Michigan car accident attorneys help you answer your questions and get you what deserve under our laws.