No matter where you live, car insurance rates keep increasing. A recent report showed a 19% annual increase in car insurance costs across the country in 2024. In Michigan, the average yearly cost for auto insurance is $3,131. By the end of 2025, the price is expected to reach $3,280.
In 2019, Michigan made drastic changes to the Michigan no-fault law that were supposed to decrease the astronomical cost of car insurance in the state. Instead, car insurance rates have not decreased, something our Michigan car accident lawyers see daily.
But why is this happening? The auto insurance industry always blames “the trial lawyers” for filing too many lawsuits. However, this is not an accurate analysis and ignores fundamental reality. The number of car accident lawsuits has remained relatively stable over the past few years. In many counties, the number of auto accident lawsuits has actually fallen.
In reality, there are multiple reasons for the continued increase in car insurance rates in Michigan.
Inflation Continues to Run High
The primary factor driving the increase in car insurance costs is inflation. The overall cost of goods and services has increased dramatically since the pandemic. Although the rate of inflation has dropped compared to 2022, the cost of importing key auto parts has increased, especially with tariffs enacted over the past year.
Supply chain issues and the increase in material costs have made vehicle repairs more expensive. The cost of replacement parts, shipping, inventory, and other items that go into fixing a car after a wreck has all gone up. Repair shops and dealerships have seen significant increases in labor and unit costs. In fact, the cost of motor vehicle repairs rose 7.9% from 2024 to 2025. Michigan drivers who have had to have their car repaired after a crash understand this firsthand. The rising costs are being passed on to consumers.
Healthcare Costs Keep Increasing
When a person gets auto insurance in Michigan, in almost all cases, they also purchase first-party PIP coverage. This is known as personal injury protection. PIP coverage is basically medical coverage for auto accident-related injuries.
Most individuals must purchase at least $250,000 in PIP medical coverage. This means the car insurance company must pay for medical expenses, like physical therapy and surgeries, not covered by private health insurance, up to the PIP coverage limit.
And the cost of medical care keeps increasing. As we know, every year the cost for physical therapy, medicine, hospital stays, and rehabilitation increases. This means that more PIP money is paid out to medical providers following a crash.
Car Insurance Companies Are Making More Money
What is interesting is that since the 2019 no-fault reform, auto insurance carriers are making a lot of money from PIP coverage. Before 2019, most car insurance carriers were paying out more cash in first-party PIP claims than they were making from premiums. This was because there was no cap on PIP. It was unlimited.
In addition, medical providers like hospitals and doctors could charge a “reasonable and customary” rate. Often, auto carriers would reimburse hospitals and MRI centers at much higher rates compared to Medicare or private insurance like Blue Cross or HAP.
But starting in 2019, and with further changes in 2020, auto insurance carriers got a fee schedule in place to significantly decrease the amount they had to pay doctors and hospitals for car accident care. This fee schedule or fee cap is less than 200% the cost of a Medicare reimbursement. This is an enormous drop in payouts for the car insurance industry, which was paying out many multiples of that before the 2019 law change.
According to ValuePenguin, profitability for auto insurance companies flipped starting in 2020. That year, PIP coverage went from unlimited medical to PIP choice, which allows people to purchase capped amounts of PIP coverage. PIP choice, along with the fee schedules introduced in 2021, significantly reduced the payout ratios for insurance carriers in Michigan. What was once a money loser, PIP coverage has now become a profit center for the auto insurance industry.
| Year | No-fault CLR in previous year | Rate increase |
| 2016 | 119% | 4% |
| 2017 | 136% | 6% |
| 2018 | 122% | 3% |
| 2019 | 126% | 3% |
| 2020 | 76% | -4% |
| 2021 | 82% | 1% |
Because of PIP coverage caps and fee schedules, car insurance companies in Michigan are now raking in profits from PIP coverage. But these cost savings are not getting passed on to consumers. Instead, many car insurance companies are keeping the difference, reaping greater profits at the expense of customers.
PIP Coverage May Be Flat, But Everything Else is More Expensive
As part of the 2019 Michigan no-fault reform, insurance carriers were required to reduce the costs of PIP coverage. But they have managed to increase the total cost of auto insurance using sleight-of-hand tricks. They can do this because car insurance is made up of different coverage plans.
Medical PIP coverage is just one form of car insurance coverage. Other coverages like bodily injury (which covers you if you cause the crash), collision (vehicle repair), comprehensive (damage due to weather or theft), and property damage also make up your total car insurance bill.
The big increase in auto rates can be seen in collision coverage. According to another recent study, the average cost of full coverage (collision) insurance in Michigan has increased 32% in just two years. This is an incredible increase, and there is little evidence showing a slowdown in this increase.
Car Insurance Rates Depend on Different Factors
Besides inflation, the cost of car insurance in Michigan depends on other factors. For example, the age and model of a vehicle, the city where the car is garaged (or stays), the person’s driving record, and the number of drivers all factor into the cost.
Although car insurance companies are no longer permitted to redline, or base the cost of insurance on a zip code, there is little doubt that this practice is still occurring. This practice hurts our most economically disadvantaged citizens. People with fixed income or low income end up paying the most for auto insurance.
How Credit Score Affects Michigan Car Insurance Rates
Car insurance companies have utilized credit scores when setting insurance rates for years. The use of credit scores in determining underwriting has only grown in importance. One study found that people with poor credit paid 91% more on average for car insurance than individuals with excellent credit scores.
Car insurers, such as State Farm or Farm Bureau, will explain that there is a direct correlation between a person’s credit score and their likelihood of filing an insurance claim. However, the methodology behind this explanation has always been debatable.
What isn’t debatable is that poor credit can make getting car insurance next to impossible for many motorists throughout Michigan. But is this fair? Credit scores are devised using a host of different variables. For example, people who have no debt and don’t use credit cards tend to have a lower credit score than individuals who use credit cards. Others with too many credit cards also get penalized, no matter if the bills are paid on time.
Where you live also makes a big difference. Living a mile away from a person with the exact same qualifications and driving record can mean the difference in hundreds of dollars, simply because of your zip code.
Even your job makes a difference. The Consumer Federation of America reported that for GEICO, a factory worker with just a high school diploma would pay 90% more for car insurance than an attorney with the same driving record.
Studies have also shown that credit scoring disproportionately disfavors minorities and people with low incomes. The use of “redlining” has plagued drivers in urban areas of Michigan, including Detroit and Flint, for years. Three states – California, Massachusetts, and Hawaii – currently ban insurance companies from considering credit scores when setting auto insurance rates.
Legislators in Michigan have recently tried to ban the practice of redlining motorists based on their home residence, but insurance-backed politicians killed the proposals.
What’s perhaps even more disturbing is that insurance companies are now analyzing all sorts of new available data to predict whether a specific individual is more likely to make a claim. For example, insurance companies look at your recreational activities and even your shopping habits when determining car insurance rates. Looking at credit scores is only the beginning.
Given this reality, what can we do? First, it’s best to try to increase your credit score. The fastest way to achieve this is to pay your bills on time, not borrow too much on an individual credit card every month, limit the number of credit cards, and try to limit the types of credit you have in general (student loans, mortgages, auto loans, etc).
Call The Best Car Accident Lawyers for Answers
If you have any questions about car insurance, or a friend or loved one has been injured in a car crash, call our office today. All consultations are free, and we never charge a penny until we win your case. Call us today at 1-800-LEE-FREE or 1-866-511-0594. We are here to help.
Related: Understanding the Intentional Act Exclusion in Michigan Insurance Policies