Suburban and rural lawmakers are already distancing themselves from Mayor Mike Duggan’s “D-Insurance” legislation, designed to reduce auto insurance costs in Detroit — with good reason. The bill’s passage would give Detroit drivers a major rate break. But if millions of other Michigan motorists have their benefits reduced, or pay higher premiums, it boils down to an unreasonable spreading of Detroit’s implicit crime tax.
Pinnacle Actuarial Resources, author of a report commissioned by the city, found nothing drives the rates more than Michigan’s no-fault law requiring unlimited personal injury protection coverage. Upon legislative approval, caps would be placed on such claims, saving Detroit residents wads of money through reduced premium costs.
But claims filed by Detroit residents are not just more expensive, but twice the rate filed by suburbanites. Would ratepayers across the state be forced to subsidize any cost savings to Detroiters?
Mayor Duggan’s motives aren’t in question. The intent of the Duggan-backed bill is to end the protracted tug-of-war between Detroit drivers and insurers over premium levels. It is in the mayor’s political interest to reduce the number of drivers who illegally drive without collision or theft insurance, or purchase only the required minimum liability coverage. By some estimates, about half of the drivers of the more than 300,000 registered vehicles in the city, do so without insurance. Why? In some cases, they can’t afford it. Some drivers just don’t care.
The mayor is also aware that a contributor to the depopulation of the city is high auto insurance costs. Conversely, if this bill passes, prospective residents would not see a doubling of their rates upon relocating to Detroit. However, it’s not clear whether Mayor Duggan understands that insurance rates can’t be reduced without reductions in the cost of providing it.
Insurance is based on the notion of shared risk. But insurance premiums must also reflect differences in the level of risk. Detroit ratepayers bear the brunt of higher premiums versus other parts of the state because that’s where the greatest risk is. To offset the cost of risk in Detroit, insurers spread these costs across the entire state.
The rate of increase in auto thefts in Detroit, for example, which historically records a disproportionate share of missing and unretrievable autos, may be double the state average. Some of these incidents include people who have uninsured accidents, or fall behind in their car payments and conveniently and fraudulently arrange for the car to be stolen.
New, “sophisticated” cars that won’t start without a key may account for epidemic levels of carjackings — thieves approaching motorists on ramps, and gasoline stations, driveways, parking lots or at stoplights, forcing them out of their vehicles and then driving off. Last year, Detroit was the carjacking capital of America.
Regardless of who does the stealing, the odds are much greater that an auto in Detroit will be stolen. That’s how insurance rates are calculated–by the odds.
There are also a growing number of reported cases of people who conveniently arrange car accidents in which they claim to receive injuries that entitle them to a lifetime of medical and other benefits. Too many Detroiters have learned how to “work the system” and “get paid.”
None of this is new. Pro-Detroit advocates have vainly waged similar “blame the insurer” crusades for decades. Critics of state insurers would have us believe they could reduce auto insurance rates in the city without affecting benefits or the profits of insurance companies. Reformers have unsuccessfully pushed for uniform rates to end premium disparities, which are sometimes three times as much for Detroit drivers as suburban motorists. Unfortunately, Mayor Duggan’s proposed bill makes no more sense than some of the other “free lunch” insurance proposals that ultimately crashed and burned in Lansing over the years.
No one disputes that Detroit has high auto insurance premiums. But the fix must come from within the city, not Lansing. Auto thefts, carjackings and fraudulent claims are serious and debilitating crime problems that drive the rates. Contain them and the premium disparity disappears.