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Know the Law – How Michigan Auto Insurance Premiums Are Set

Posted at 8:40 AM, Sep 29, 2018
and last updated 2018-09-29 08:40:42-04

If you own a vehicle in Michigan, you are required to purchase auto insurance. But what factors are taken into consideration when determining the amount you pay in Michigan auto insurance premiums? Grand Rapids car accident attorney and auto no-fault expert, Tom Sinas, explains.

Michigan Auto Insurance Premiums Up For Debate This Fall
We are going to hear a lot more about Michigan auto insurance premiums heading into the fall election season, especially with regard to no-fault reform. It’s important right now to take a step back and ask: How are auto rates set? Do we really have any type of regulatory oversight over Michigan auto insurance premiums?

The simple answer is no. There is none.

How Premiums Are Established in Michigan
In the state of Michigan we have what is known as a file and use system. Insurers go to the insurance commissioner, state what they are going to charge the insured, and the insurance commissioner either accepts or rejects it. In the forty plus years since the no-fault system was enacted, to the best of our knowledge, the insurance commissioner has never rejected a rate proposal. In part because we have a cumbersome and loose definition of what and excessive Michigan auto insurance premium is.

Michigan statute defines excessive as:

“A rate that is unusually high for the insurance coverage that is provided and a reasonable degree of competition does not exist with respect to the classification, kind, and type of risks to which the rate is applicable.”

This definition has very little meaning and is highly subjective. So, if premiums aren’t found to be excessive within this vague definition, insurance companies can assess the rates against the policyholders.

Non-Driving Rating Factors Determining Premiums
These are the factors insurance companies use to charge premiums that have nothing to do with driving. A surprising study was released recently by that found someone with fair credit pays 90% more than someone with good credit, whereas someone with poor credit pays 229% more than someone with good credit. This credit disparity, the study also found, is worse in Michigan than in any other state. Other non-driving rating factors include marital status, age, and gender.

Insurance Premiums and the No-Fault Debate
As we head into voting season, keep these factors in mind. A lot of what people are being charged for has nothing to do with how good or bad of a driver they are, and there is little definition of excessive or regulation over rate setting in Michigan.