With an average premium of $2,394 per year, Michigan has the most expensive auto insurance in the nation. The next most expensive state, Louisiana, has an average premium of $1,921 per year. Detroit is, by far, the most expensive city to purchase auto insurance with an average yearly premium of $7,415 – 60 percent higher than the second most expensive city (Brooklyn, NY).
Insurance is a straightforward business. Premiums coming in to the insurance company must equal claims going out. Anything that increases claims will lead to an increase in premiums. There are several factors that cause Michigan to have higher than average claims and in-turn, higher premiums. In 2014, Michigan’s auto crash rate of 3,012 crashers per 100,000 people was 50 percent higher than the national average and three times higher than Louisiana’s. Although Detroit’s car crash rate is about the same as the Michigan average, the city’s auto theft rate is off-the-charts. Detroit’s auto theft rate in 2014 was 1,474 thefts per 100,000 people, which is seven times higher than both the national and statewide averages. Detroit has seven percent of Michigan’s population, yet 47 percent of Michigan’s auto thefts occur in Detroit. In contrast, New York City has an auto theft rate of 91.2 thefts per 100,000 people while Louisiana has 213 per 100,000 people. Auto theft in Detroit largely explains why insurance is so expensive there.
Michigan law has unique requirements that further inflates the cost of auto insurance. Michigan law requires auto insurance to include unlimited personal injury protection (PIP), which covers unlimited medical expenses incurred in a crash. Most states have a cap on PIP; Louisiana, for instance, has a $30,000 cap. Unlike with health insurance companies, Medicare and Medicaid, auto insurance companies do not pay for medical services based on a fee schedule that they negotiate with hospitals. They just pay whatever the hospitals charge. This is great for hospitals, but not for auto policyholders.
In addition, Michigan law requires that auto insurance companies pay for 24-hour home care for someone injured in an auto accident if this care is deemed necessary by a court, even if the home care is provided by a family member. This can lead to abuse and higher premiums. No-fault insurance was designed to avoid lawsuits by requiring the driver’s insurance company to pay medical costs incurred due to an accident rather than suing the other driver. As discussed in a Mackinac Center report entitled, “What’s Wrong with Michigan’s No-Fault Automobile Insurance?” the Michigan Supreme Court has made it easier to sue after an accident. The Detroit Free Press, in a series of articles entitled, “Why Does Auto Insurance in Detroit Cost So Much?” found that personal injury attorneys aggressively solicit lawsuits, which increases premiums.
To reduce premiums, claims must be reduced. In Detroit, this means reducing thefts. In Michigan, this means reducing crashes and addressing Michigan’s no-fault law. Until then, premiums will continue to be sky-high.