DETROIT – Michigan has the most expensive car insurance rates in the nation — and Detroit’s are far worse than the statewide average. In fact, they are the worst of any city in the country.
That’s something well-known in many circles — yet so far, nobody has been able to do anything about it.
Detroit Mayor Mike Duggan is renowned as a master of political deals, but last year he utterly failed to get the legislature to approve a cheaper form of insurance for Detroiters. So did billionaire Dan Gilbert. Attempts to get change are still underway, even though there isn’t even general agreement as to why insurance prices are so high.
But what is known is that they are hurting Detroit’s ability to attract new residents. Many suburbanites who have moved to the city still have drivers’ licenses showing them as living, say, in Birmingham, so they won’t have to pay Detroit car insurance rates.
However, there’s another dimension to this that has been largely ignored. “The cost of auto insurance has become a major barrier to people being able to lift themselves out of poverty,” said Joshua Rivera, a Detroit-based researcher for Poverty Solutions, a long-term project run by the University of Michigan.
Indeed, the cost of car insurance in Detroit is hard to believe, and for most residents, impossible to pay. The median household income in Cleveland and Detroit is about $30,000 a year.
But while the average annual car insurance premium in Cleveland is $1,277, in Detroit, it is an astronomical $5,414.
That means that Detroit family would have to pay nearly one-fifth of its entire income for car insurance. The federal government deems that auto insurance is “unaffordable” in areas when insurance premiums amount to more than two percent of income.
The cost in Detroit is almost ten times that. The complete figures – together with many other significant facts about auto insurance in Michigan — can be found in a just-released new Poverty Solutions report: Auto Insurance and Economic Mobility in Michigan.
How, I asked Mr. Rivera, a co-author of the report, do most Detroiters manage to pay for car insurance? “They don’t,” he said.
In fact, the insurance industry estimates that three out of five Detroit drivers don’t have car insurance at all – even though driving without insurance is a misdemeanor that means a steep fine and which can land an offender in jail for a year.
So some Detroiters choose not to drive at all – but there is a major downside to that too. Most jobs are in the suburbs, and in most cases, you can’t get there without driving.
Researcher Rivera, who previously worked on workforce development issues in the Chicago mayor’s office, said that Detroiters struggling to get out of poverty face a transportation triple whammy: “First, there are the crumbling roads. Then, for most people, public transportation is not a viable option.
“And the cost of car insurance makes it impossible for many people to drive.” There is little reliable public transportation in Metropolitan Detroit, except for two separate and poorly coordinated bus systems. So, many people remain jobless and poor.
Opinions differ on the precise reasons insurance costs in Detroit are so high. Some have alleged that some form of racial discrimination is a factor, since most residents are poor and black.
Poverty Solutions has not yet studied that, though Mr, Rivera said “that’s the next phase of the research we were thinking about.”
But that wouldn’t explain why rates are so high in the rest of Michigan; the statewide average annual premium is $2,610, higher than in any other state. Most of the reason seems related to the unusual structure of insurance laws in Michigan.
Michigan is one of a dozen states with a no-fault insurance system, which means the driver’s insurance company pays for damages from an accident, no matter who is at fault.
But it is the only state in the country that makes all drivers purchase unlimited Personal Injury Protection coverage.
What’s more, Michigan does not impose limits on what doctors and hospitals can charge insurance companies! That means the average cost per claim tends to be huge.
In fact, according to the Poverty Solutions study, the average cost per claim is more than five times higher than in New Jersey, the next most expensive state. This system and the unlimited benefits also make the state a mecca for personal injury attorneys.
Plus, those injured in a car accident have up to a year to file a claim; in most states, it is about two weeks.
Clearly, the system is overdue for reform. But there are roadblocks. Michigan does provide lifetime Cadillac care for anyone who suffers incapacitating injuries in an auto accident.
L. Brooks Patterson, the politically influential Oakland Count executive, was badly injured in an accident seven years ago — and has fought any attempts to change that coverage.
But the Michigan Catastrophic Claims fund is now believed to have far more money in it – possibly as much as $20 billion – than is ever likely to be needed. Trouble is, those administering the fund have not been required to be transparent – and haven’t been.
Something clearly has to be done.
Poverty Solutions suggests a three-pronged approach: 1) Provide options to making everyone pay for mandatory lifetime coverage, 2) impose sensible fee schedules for medical care, and 3) limit the time accident victims have to file a claim.
“We need to make sure those who most need to drive a car are able to (afford to) drive,” Mr. Rivera said. This is a problem, he added, that can be fixed if all stakeholders are willing to compromise.
It is also a problem that has to be fixed, if Detroit is ever to lift itself out of poverty, and Michigan to have much of a future.
