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Why is car insurance so expensive? | Michigan auto insurance

posted Sep 2, 2015, 1:11 PM by Jason Grubbs   [ updated Sep 14, 2016, 12:04 PM ]
Auto insurance in Michigan is unique in that each policy, by state requirement, provides unlimited coverage for medical expenses resulting from an auto accident.

Individual insurance companies weren't able to absorb the potential cost of providing these unlimited medical benefits.  As a result, in 1978, the state legislature created the Michigan Catastrophic Claims Association (MCCA), which provides funding for catastrophic auto claims.

Currently your insurance company would pay the first $545,000 of medical expenses if you were injured in an auto accident.  If a claim exceeded that amount your insurance company would continue to handle administration of the claim, but the additional dollars they spent for medical benefits would be reimbursed from the MCCA.

There are two premiums in each and every Michigan auto (and motorcycle) policy directly related to these benefits that account for higher auto insurance costs in Michigan.  The first is Personal Injury Protection (PIP) which funds coverage for the first $545,000 of medical benefits as well as providing limited benefits for lost wages and/or replacement services that may be needed if you are injured in an auto accident.  The second is an MCCA assessment for each and every vehicle insured in Michigan.

The MCCA assessment is currently $160 a year for each vehicle.  While the assessment is included in your auto insurance policy this is simply the mechanism of collection - your insurance company turns those dollars over to the MCCA, which serve as the source of funding for an enormous pool of dollars that pay auto-related medical benefits for any claim that exceed $545,000.

Over the years a routine topic of debate in the legislature has been reforming the current system in some fashion that would allow consumers to choose their own level of medical benefits.  This would effectively amount to scrapping unlimited medical benefits and would also mean individuals would bear more responsibility and risk for choosing an appropriate level of coverage to meet their needs in the event they suffered catastrophic injuries in an automobile accident.

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