The Michigan Legislature has demonstrated an interest in reforming the state’s auto insurance laws for many years. Lawmakers have introduced more than 350 bills that would modify the state’s insurance laws since 2001. This legislative interest is likely driven by a belief among voters that auto insurance premiums are too expensive.
And there’s evidence to back up this belief, although calculating the average premium paid by Michigan drivers and comparing that to other states is not a straightforward task. Because auto insurance companies function by managing risks and expected losses, they operate most efficiently when they can differentiate the price of their premiums based on the insured’s risk profile. In simple terms, the riskier it is for a company to insure a driver, the higher the insurance premiums they will charge. This makes it challenging to calculate an average statewide auto insurance premium.
Despite these limitations, a few organizations have estimated the average auto insurance premiums across the country, state by state. Although the rates vary, and sometimes dramatically, a common fact is that Michigan’s rates are some of the highest in the nation.
The National Association of Insurance Commissioners, an organization governed by and supporting the work of state insurance regulators, released a study in early 2017 that estimates average auto insurance premiums by state. Using data from 2014, they estimate Michigan’s average annual premium to be $1,351. This is up 24 percent from 2010 and third highest in the nation, behind only New Jersey and Louisiana. The national average, based on NAIC’s estimates, is $982, 27 percent less than Michigan’s average rate.
Carinsurance.com, a website focused on helping consumers shop and purchase auto insurance, also published estimates of average premiums by state. Their research is based on data obtained from Quadrant Information Services, the Insurance Information Institute and the U.S. Census Bureau. The average Michigan premium based on their research was $2,484 in 2017, the highest in the nation and 83 percent higher than the national average of $1,355. In fact, Michigan was 13 percent higher than the second highest state, Louisiana.
A third estimate comes from Insure.com, an auto insurance clearing house, which contracted with Quadrant Information Services to conduct a state-by-state comparison of average auto insurance premiums. This analysis also places Michigan in the unenviable position of leading the nation in average auto insurance premiums. Michigan’s annual average rate is $2,394, 82 percent more than the national average of $1,318 and 25 percent higher than the next highest state, Louisiana. Insure.com has conducted this analysis for the last six years and Michigan has ranked first or second each year.
While the estimates vary and there are reasons to use caution when comparing auto insurance premiums across states, it is meaningful that these analyses all rank Michigan’s average premium among the most expensive in the nation.
It should not be surprising to learn, therefore, that the Insurance Information Institute estimates that a whopping 21 percent of Michigan drivers are uninsured — one of the highest rates in the nation. The more expensive the premiums, the more likely it is for drivers to accept the risks of driving uninsured.
These analyses also suggest that were Michigan to reform its auto insurance laws and make them more like those in other states, the premiums drivers pay would decrease.
It’s hard to pin down exactly what factors and to what extent each factor contributes to the relatively high costs of Michigan auto insurance premiums. One possible explanation is that Michigan drivers are just simply riskier to insure, maybe causing more accidents and damage than drivers in other states, for example. Or, perhaps Michiganders tend to drive the types of vehicles that are more expensive to insure.
But these plausible explanations do not appear to be supported by data. In a 2010 RAND Corporation study, Paul Heaton tried to figure out the main cost driver of Michigan’s auto insurance premiums. Using data from 2007, he created a statistical model that estimated the expected average claim cost in Michigan after factoring in 72 variables that might affect this cost. He then compared this expected average claim cost with the actual average claim cost in Michigan.
Heaton’s analysis found that the expected average claim in Michigan should cost about $12,885 based on the characteristics of the accidents and the injuries that occurred. But the actual average claim cost in Michigan was 57 percent higher, at $20,229. This analysis suggests that it is not any unique characteristic of Michigan drivers or accidents that is driving up premium prices, but rather the unique series of policies that Michigan uses to regulate auto insurance.
 Based on data compiled by MichiganVotes.org, a service operated by the Mackinac Center for Public Policy.
 NAIC’s estimate is an average of the estimated premiums they calculated for three types of coverage: liability, comprehensive and collision. The report also states that the estimate makes “no distinction as to policyholder classifications, vehicle characteristics, or the election of specific limits or deductibles...[n]or do the results consider differences in state auto and tort laws, rate filing laws, traffic conditions, or other demographics.” “Auto Insurance Database Report 2013/2014” (National Association of Insurance Commissioners, Jan. 2017), https://perma.cc/7NF5-W4SF.
 “State Car Insurance Rates” (CarInsurance.com, May 22, 2017), https://perma.cc/7BMU-EANA.
 Penny Gusner, “Car Insurance Rates by State, 2017 Edition” (Insure.com, July 28, 2017), https://perma.cc/EH62-VG7B. Insure.com’s methodology analyzed rates from six large insurers in 10 ZIP codes in each state in May 2017 for 20 of the best-selling vehicles in the U.S. The estimates are based on what full coverage would cost for a single, 40-year-old male with a clean driving record and good credit.
 “Uninsured Motorists” (Insurance Information Institute, 2017), https://perma.cc/AS7U-3G8G.
 Paul Heaton, “Auto Insurance Reform in Michigan” (RAND Corporation, 2010), 3, https://perma.cc/Q9GQ-9JB7.
 Paul Heaton, “Auto Insurance Reform in Michigan” (RAND Corporation, 2010), 4–5, https://perma.cc/Q9GQ-9JB7.