Michigan No-Fault Insurance: Up, Up, and Away

Michigan No-Fault Insurance: Up, Up, and Away

Michigan’s “no fault” statute was designed to limit litigation, by shifting the risk of certain losses from automobile accidents to the owner of the vehicle.  You are responsible in Michigan to insure your own vehicle and its contents in an accident.  In relation to the obligation to insure your car, if you are not a resident of Michigan and are driving a car that is registered in another state, you must carry Michigan no fault insurance or equivalent coverage if the car is operated in Michigan for more than 30 days in any calendar year.

However, Michigan is the only state that offers unlimited personal injury protection benefits.  These benefits are offered through no-fault auto insurance policies.  The Michigan Catastrophic Claims Association (MCCA) reimburses no-fault auto insurers for benefits that exceed $400,000 as of July 1, 2006.  MCCA was created by the legislature as a means of spreading costs across all Michigan motorists for providing these unique unlimited benefits.  Although created by statue, the MCCA is a private, nonprofit association.  All of its dealings are with insurance companies, not the general public.  Each year, the MCCA analyzes the amount needed to cover the lifetime claims of all people catastrophically injured in a car accident.  This amount needed to pay those lifetime claims is set and a per-vehicle assessment is calculated based upon that amount.  Since 1979, 19,000 catastrophic claims have been reported to the MCCA.  Based on current estimates, more than 10,633 claims remain active, resulting in future lifetime payments in excess of $55 billion dollars.  In 2006 alone, the MCCA’s assessment per vehicle was $137.33 dollars.  It has not gone down much and as of 2009 was $124.89 per vehicle.

Every policy written in the State of Michigan must have what is called PIP or personal injury protection auto insurance.  PIP is a type of add-on coverage that pays for the medical expenses, lost wages, and rehabilitation and funeral expenses of a policy holder or his or her passengers after a vehicular accident.  Michigan’s PIP is one of the most comprehensive in the United States.  You are covered for unlimited medical benefits and rehabilitation, up to 3 years of lost wages and $20 per day in replacement services for up to three years.  Fault is not taken into consideration when assigning PIP benefits.  The PIP law applies to any third parties driving your vehicle, as the vehicle is insured, and not the driver.

The Michigan No Fault Automobile Insurance Act was adopted by the Michigan legislature in 1972 and went into effect in October of 1973.  The Michigan law has the broadest and most generous medical expense and patient care provisions of any no-fault statute in the United States.  It states that an injured person is entitled to recover certain “allowable expenses” which are described as “all reasonable charges incurred for reasonably necessary products, services and accommodations for an injured person’s care, recovery or rehabilitation.”

One of the major factors that determine how much you will pay in automobile insurance is the state where you live.  Michigan is the costliest state to insure your automobile with average annual rates around $2,541 dollars.  Even the congested State of New York is number 21 out of 50 states.  Several attempts have been made to recover some of the money paid into the MCCA fund claiming that the MCCA surplus was excessive and that policy holders had been overcharged.  Opponents of the refund, primarily the insurance industry, argue that it threatens the continued availability of unlimited medical benefits for Michigan drivers and is fiscally irresponsible.  As of June 30, 2011, the cash and assets for the MCCA listed on its balance sheet is over $13,807,070,800 billion dollars.  The State of Michigan finds itself in a “catch 22” situation.  The “no fault” insurance law has been in effect for 39 years and every year that it remains in effect with unlimited medical liability, the state obligation continues to grow.  Funding this liability will become more expensive each year as health care costs continue to escalate.  But this unlimited personal injury protection provision is at the heart of why Michigan is the costliest state to insure a car.

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Written by
Donald Wittmer