| 90 sec read | by Doug Marrin |

By now everyone knows Michigan has the highest auto insurance rates in the country because of the “no-fault” car insurance system.

Michigan drivers pay an average of $2,693 annually for car insurance compared to a national average of $1,470. Detroit drivers pay an average of $5,464 which is the main reason 60% of them don’t have auto insurance.

What is “no-fault” insurance?

“No-fault car insurance means that if a driver gets into an accident, that driver is reimbursed by their insurance company for all damages – even if they are responsible for the accident.

This “liability” insurance not only reimburses vehicle damage, but also the cost of any physical recovery. Personal injury protection (PIP) can potentially cover medical bills and benefits for up to a lifetime. Michigan is the only state that allows unlimited PIP, and it is mandatory.

What is driving auto insurance costs in Michigan?

Medical benefits often take the form of court settlements from lawsuits. Law firms typically receive 33-40% of the settlement, but this does not include legal costs for medical records, police records, expert witnesses, postage, filing fees, private investigators, depositions and trial exhibits.

With all things considered – costs, fees, expenses – the lawyer’s final portion of the settlement can be 45-60% of the settlement.

It seems counter-intuitive, but it is not the insurance companies driving Michigan’s high car insurance rates. What drives the high insurance rates is a combination of how the system is set up for no-fault and PIP and how lucrative these big settlements have become for those who know how to work the system.

Fixing it

Michigan state legislators both recently passed bills that would change fundamental parts of Michigan’s auto insurance laws. Both bills would lower car insurance rates, mainly by the elimination of mandatory PIP and instead offer several types of no-fault coverages ranging from zero to unlimited PIP.

Why Gov. Whitmer will veto either bill

The main reason Gov. Whitmer will likely veto the bills is that while insurance premiums will likely be reduced, there are no guarantees written into the legislation leaving loopholes.

Another point of contention is how to control or eliminate the practice of “red lighting” where insurance companies use non-driving factors such as credit scores and zip codes to determine insurance rates.

Whitmer responded to the Republican bills by saying that, “I’ve been very clear that I’m not going to sign a bill that preserves a corrupt system where insurance companies are allowed to unfairly discriminate in setting rates. I am only interested in signing a bill that is reasonable and fair and actually provides strong consumer protection and immediate financial relief.”

What’s next?

Political gamesmanship.

The two bills could soon reach Whitmer’s desk. Republicans are daring the Democratic Whitmer to veto the bills. From the way she is talking, it is likely she will.