How to Fix Michigan’s Broken Auto Insurance System

New report details problems and describes solutions for no-fault

Thursday, September 28, 2017

Michael Van Beek
Director of Research
(989) 698-1913

MIDLAND — Studies show that Michigan auto insurance premiums are at or near the top of lists of the most expensive in the nation. This is due to the state’s unique no-fault insurance laws, originally created in 1973. Although these laws were intended to decrease premiums by reducing court costs associated with auto accidents, they have proven to have just the opposite effect.

In the Mackinac Center’s new policy brief, “What’s Wrong With Michigan’s No-Fault Automobile Insurance,” Matthew Coffey, an attorney and lecturer at Central Michigan University, explains what went wrong and how to fix it.

The key theory to the benefits of a no-fault system, which only 11 other states use, is that it will drive down the number of lawsuits filed as a result of car accidents and thereby limit court costs. But in Michigan, the number of lawsuits has actually increased under our no-fault system.

“Recent decisions by the Michigan Supreme Court have drastically reduced the difficulty associated with suing at-fault drivers for negligence, which is contrary to one of the primary purposes of Michigan’s no-fault system — the reduction of personal injury lawsuits in exchange for very generous benefits,” explained Coffey. “Providing stricter standards for these lawsuits would help fix this problem and do what no-fault was intended to do in the first place: reduce legal costs associated with auto accidents.”

Perhaps the biggest driver of high auto insurance rates is uncapped personal injury protection benefits. Under Michigan law, people injured in automobile accidents can receive an unlimited amount of benefits and every driver must purchase this level of coverage.

“No other state in the country requires drivers to purchase coverage for unlimited, lifelong benefits if they are injured in a car accident,” said Coffey. “The closest would be New York, which only mandates drivers carry $50,000 of personal injury protection. That would be a much more reasonable standard for Michigan.”

Creating a fee schedule for medical treatment after a car accident would also help contain costs. While medical insurance companies and government programs like Medicare and Medicaid use such practices, the same is not true for auto insurance companies. As a result, it is not unusual for hospitals to charge these companies five times more than they would charge Medicare for the same service.

“The current system lacks flexibility, creates opportunity for fraud, doesn’t achieve its goal of limiting lawsuits and is outrageously expensive,” Coffey said. “As a result, more than one in five Michigan drivers is uninsured. Michigan’s no-fault experiment was well-intentioned, but it has failed. It’s time to enact more reasonable standards, which will mean lower rates for everyone and fewer uninsured drivers.”

Read the full text of “What’s Wrong With Michigan’s No-Fault Automobile Insurance.”

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