It is common knowledge that Michigan has some of the highest car insurance rates in the nation. Many people claim the high premiums are due to the state’s no-fault system. However, other factors also are at play when it comes to Michigan auto insurance rates.
Perhaps the most critical insurance premium factor is this: Michigan auto insurance rates are basically unregulated. Michigan has what is called a “file and use” system, whereby an insurance company files its rates with the Department of Insurance and Financial Services and then charges customers those rates.
While state law permits the Michigan Insurance Commissioner to object to an “excessive” rate, in the 44-year history of the no-fault law the Commissioners has never declared an auto insurance rate to be “excessive.” Perhaps this is because the definition of “excessive” in the Insurance Code is vague, making it virtually impossible for a rate to be deemed “excessive.” The Code says: “A rate shall not be held to be excessive unless the rate is unreasonably high for the insurance coverage provided and a reasonable degree of competition does not exist with respect to the classification, kind, or type of risks to which the rate is applicable.”
Further, most Michigan consumers choose coordinated no-fault coverage rather than uncoordinated coverage. Why? Because coordinated benefits are supposed to be cheaper. Under a coordinated no-fault policy, if you’re injured in a car accident your health insurer pays the medical bills first and the auto insurer pays second. If you have coordinated no-fault benefits, the law says your insurance premium is supposed to be “appropriately” reduced.
However, it has recently been disclosed that the Insurance Commissioner does not have any real methodology in place to determine whether premiums for coordinated policies have been “appropriately reduced” by auto insurers. So while consumers are supposed to be saving money by purchasing a coordinated policy that places the primary risk on their health insurer, it appears that consumers may not be getting any discount at all.
Remember: Michigan consumers are required to buy no-fault insurance in order to legally operate their motor vehicles. This is even more reason why consumers need to be charged fair and reasonable prices by the state’s auto insurance companies.