State Farm to Raise Michigan Auto Insurance Rates

Some State Farm customers in Michigan will see their auto insurance premiums rise in early 2012, with the company announcing Friday it will raise overall private vehicle rates an average of 2.1 percent as of Jan. 23.

The cost of limited property damage, collision and comprehensive coverages will increase for some policyholders and decrease for others. But the price of the mandatory portion of policies—including liability and personal injury protection (PIP) coverage—will rise across the board, according to the company.

A State Farm spokesman could not be reached for comment Friday, but officials pointed out in a news release that the mandatory coverages account for nearly half of each customer’s monthly policy payment.

State Farm Voices Support for No-Fault Reform

State Farm is among the many auto insurance companies in Michigan calling for changes to the state’s no-fault system, the only one nationwide that requires insurers to cover up to a lifetime of medical and rehabilitative costs for victims of automobile crashes. Insurers and industry associations contend that rising PIP claims have increased costs for carriers and led directly to higher policy rates for drivers statewide.

Average PIP claim size by stateCritics claim the system must be overhauled in order to prevent coverage costs from skyrocketing, forcing providers to raise premiums in order to maintain profitability. Healthcare providers and others opposed to altering the system, meanwhile, say the changes would bankrupt victims of serious vehicle crashes and their families and bankrupt taxpayers, who would then be forced to pay the bills.

Under the system that the state adopted in the 1970s, drivers statewide pay into a fund managed by the Michigan Catastrophic Claims Association (MCCA) that helps finance PIP claims that exceed $500,000. That payment is made in the form of a fee that is tacked on to vehicle registrations and is currently $145 per vehicle.

Critics claim the system burdens insurers with prohibitively high health care costs and has caused policy rates in Michigan to be among the highest nationwide. The American Insurance Association (AIA) says PIP claims costs have risen 20 percent in the last four years because of Michigan’s lifetime benefits mandate, making it the 11th most expensive state for auto coverage nationwide.

Legislation supported by State Farm and other insurers would establish a four-tiered system under which motorists could choose to carry $250,000, $500,000, $1 million or $5 million in PIP coverage. If a policyholder opted not to choose between those levels, the policy would automatically be set at $500,000, which is higher than the minimum limits in any other state.

Proponents say the lower limits would lead insurers to reduce premiums, making it easier for state residents to afford insurance and convincing some motorists who haven’t been able to afford coverage to buy policies.

Opponents, however, maintain that the changes would benefit no one but insurers, who would profit because they would no longer be obligated to cover necessary treatment for serious accident victims. And some Democratic lawmakers have pointed out that the legislation places no requirement on insurers to actually follow through with a corresponding price cut along with the decrease in coverage.

A study released in September by critics of the proposed legislation claims that healthcare costs for accident victims would be forced on those victims, their families and taxpayer-funded health care programs, costing the state’s Medicaid program an estimated $30 million or more in just the first year.

State Farm officials said this week that overall premium changes for individual policyholders will continue to vary depending on factors including where they live, what kind of car they drive and how far they drive it, plus the coverages they carry and any discounts that they qualify for.

About Ben Zitney
Benjamin Zitney has been covering the auto insurance industry for the past 2.5 years. Before coming to Online Auto Insurance News, he produced an extensive company history of the 30-year-old California Joint Powers Insurance Authority and worked at the Cal State Long Beach Daily Forty-Niner as a reporter, copy editor and news editor.

No comments yet.

Comment on this article