5
WHY ARE RATES SO HIGH IN DETROIT?
As started earlier, the average price of an auto policy in De-
troit is $5,414, eating up 18 percent of the median household
income of Detroiters. One reason Detroit rates are higher as
compared with the rest of the state is the volume and size of
PIP claims in the city.
21
These high levels of PIP claims are
driven in part by the relative lack of private health insurance in
Detroit. No-fault benefits are tapped before Medicare or Med-
icaid by law, so PIP benefits are called upon more frequently in
places where public insurance coverage is more common, and
private coverage is less so. This means that PIP is more likely
to be called on to address damages than in other parts of the
state. Not only are there far more PIP claims in Detroit than in
the surrounding suburbs, but PIP claims are for almost double
the amount ($59,000 on average, compared to $30,000).
22
This
then drives up insurance premiums in the city.
Another reason for Detroit’s highest-in-the-nation rates is that
insurance companies use non-driving characteristics to set
premiums for customers.
This includes factors such as marital status, educational
attainment, home ownership status, and credit scores. Be-
cause these factors are not directly related to one’s driving
record—yet are highly correlated with income—critics have
argued that their use in setting premiums amounts to insur-
ance “redlining”, with the same policy costing thousands of
dollars more in the city limits of Detroit than it does just a few
miles outside it.
23
Of these factors, credit scores are by far the
biggest cost driver, with rates more than doubling for those
with poor versus excellent credit.
24
This is a big problem for
Detroit residents, who collectively have some of the lowest
credit scores in the country.
25
Thus, a single mother in Detroit
with a perfect driving record but bad credit could be charged
one of the highest auto insurance premiums of any person in
the entire country, despite never having been cited for a traffic
violation or having been a part of a traffic accident.
21 Mosley, R. C., Jr. (2015, June 8). D-Insurance: City of Detroit Insurance Company Feasibility Study. Retrieved from www.detroitmi.gov.
22 Ibid.
23 Livengood, C. (2017, October 22). Detroit isn’t the only city with outsized insurance rates. Retrieved from https://www.crainsdetroit.com/article/20171022/
news/642731/detroit-isnt-the-only-city-with-outsized-insurance-rates
24 THE SECRET SCORE BEHIND YOUR RATES. (n.d.). Retrieved from http://www.consumerreports.org/cro/car-insurance/credit-scores-affect-auto-insurance-rates/
index.htm#creditmap; Study: Poor Credit Can Double Auto Insurance Rates. (n.d.). Retrieved from http://www.insurancequotes.com/auto/study-how-poor-credit-
double-auto-insurance-rates-82218;
25 Dudley, D. (2016, October 17). Detroit Is America’s Capital of Bad Credit. Retrieved from https://www.citylab.com/life/2016/10/detroit-is-americas-capi-
tal-of-bad-credit/504137/; Ludwig, S. (2015, October 13). Credit scores in America perpetuate racial injustice. Here’s how | Sarah Ludwig. Retrieved from https://
www.theguardian.com/commentisfree/2015/oct/13/your-credit-score-is-racist-heres-why; Darity, W., Jr., Hamilton, D., Paul, M., Aja, A., Price, A., Moore, A., &
Chiopris, C. (2018). What We Get Wrong About Closing the Racial Wealth Gap. Retrieved from socialequity.duke.edu
26 Reindl, J. (2017, May 09). No-fault fixes? How other states reined in auto insurance costs. Retrieved from http://www.freep.com/story/news/local/michi-
gan/2017/05/08/how-can-auto-insurance-detroit-affordable/100018602/
27 Other no-fault states have mandatory minimum PIP purchase requirements ranging from $3,000 in Utah to $50,000 in New York.
WHAT CAN WE DO?
Addressing the extreme costs of auto insurance—and remov-
ing a major barrier to mobility from poverty for low-income
residents in Detroit and across the state—will require com-
promise, sacrifice, and collective action by numerous stake-
holders. Hundreds of bills have been introduced in the State
Legislature over the past ten to fifteen years to address the
issue, but so far, little agreement has been reached. Some
proposals focus on redlining, targeting the way in which
insurers use non-driving factors in setting premiums. These
proposals would reduce the extent to which premiums vary
within the state, but would not necessarily lower premiums
across the state. Others focus on reining in PIP payouts, and
in doing so reducing premiums statewide, but perhaps leaving
in place significant geographical variation. In order to control
rates and achieve buy-in from all stakeholders, both factors
must be addressed.
REINING IN PIP PAYOUTS
A clear way to reduce rates would be to rein in PIP payouts.
This could be done by:
• REPLACING MANDATORY UNLIMITED LIFETIME PIP COV-
ERAGE WITH A BROADER MENU OF COVERAGE OPTIONS.
Michigan is the only state in the U.S. that requires drivers
to purchase unlimited PIP coverage.
26
27
Doing away with
mandatory unlimited lifetime coverage—and allowing con-
sumers to select the coverage that best fits their needs as
is done in other insurance markets—is the clearest way to
reduce rates across the state, including in Detroit. Doing so
is critical to reducing costs, but is likely to face significant
opposition from interest groups that would be hurt financial-
ly by this change.
• IMPOSE FEE SCHEDULES. Michigan does not use fee
schedules for medical care, creating numerous perverse
incentives for stakeholders in the system. Several recent
bills have included proposals to variously cap PIP fees at