Michigan has two intertwined problems when it comes to car insurance rates, according to a new University of Michigan report: overall high premiums that place the biggest burden on the poorest communities.
The report finds that car insurance is unaffordable for the vast majority in Michigan, with “affordability” defined as two percent or less of an area’s median income.
97% of Michigan zip codes hit that threshold. Only a few more affluent areas around Detroit, Ann Arbor and Lansing had truly affordable rates.
But rates are even higher in lower-income communities, and highest in Detroit, where residents can pay on average 12-to-36% of median income on auto insurance. The average car insurance premium in Detroit is $5,414, compared to $2,610 for the state as a whole (which is twice the national average).
UM researchers Patrick Cooney, Elizabeth Phillips, and Joshua Rivera say the practical impact is that in those communities, many people drive uninsured, or can’t drive at all. And that perpetuates poverty.
“Unaffordable insurance may force low-and moderate-income individuals to forgo driving, limiting their ability to get to school, health care appointments, or jobs that are often outside the city limits,” the report notes. “Recent findings from a representative survey of Detroiters finds that 34 percent don’t own a car, and nearly a quarter report having recently missed work or an appointment due to lack of transportation.”
The report also delves into why Michigan’s car insurance premiums are so high, and why there is such a large disparity between zip codes based on income.
The researchers note that Michigan requires drivers to purchase unlimited Personal Injury Protection [PIP] policies, which means that insurers are on the hook for unlimited medical fees. That’s coupled with a lack of regulated fee schedules for medical providers, who tend to charge more for procedures covered by PIP than those covered by other insurance programs such as Medicare.
The report’s authors suggest the state impose medical fee schedules and offer a selection of capped PIP policies. In this way, its suggestions mirror the agenda of Detroit Mayor Mike Duggan, who’s aggressively campaigned for major changes to car insurance at the state level.
The report also suggests that change will alleviate the higher rate burden on Detroit, which sees both more and higher PIP payouts than other areas. But it also notes that another factor that drives rates up in poorer communities is the use of non-driving factors like credit scores to determine rates. Restricting the use of those factors is in line with what some other Michigan policymakers, such as U.S. Representative Rashida Tlaib, have suggested in order to bring down rates.
Unmentioned in the report, and in most policymakers’ narratives about auto insurance costs in Michigan, is that Michigan is what’s called a “file and use” state. That means rate-setting itself is loosely regulated at the state level, largely letting insurers file and then set rates on their own, with the only criteria for approval being that they’re “actuarially sound.”
The report is clear-eyed about the political obstacles to change.
“The sides of this debate are well drawn,” the researchers write. “Medical providers, trial lawyers, and patient advocates have fought all efforts to reduce PIP payouts. Those representing high-poverty areas of the state have resisted reforms that fail to address the use of non-driving related factors in setting insurance rates. Insurers push back against efforts to restrict the use of non-driving factors, arguing that they need this information to create actuarially sound models.”
But it warns that tackling the problem is necessary: “Only in doing so can Michigan end a cycle of poverty that puts Michiganders and our state, as a whole, at a competitive disadvantage.”