Auto Insurance Reform's Biggest Winners: The Working Poor

A recent poll found that 42% of surveyed Detroit residents believe that lowering the cost of auto insurance is the best way to improve transportation and mobility in and around the city. Most notably, that’s the response of people who don’t have a car.

Findings such as this are signs of a problem that has plagued Michigan for years, says Joshua Rivera.

Rivera is a data analyst for the city of Detroit and a policy adviser at Poverty Solutions, a unit of the University of Michigan. He recently gave a presentation titled “The Price of Auto Insurance: A Barrier to Economic Mobility” at an event in Lansing, hosted by the Mackinac Center for Public Policy. Rivera explained why auto insurance rates are so high and how they harm Michigan families, particularly the working poor and those who live below the poverty line.

The average auto insurance premium in Detroit is $5,414, Rivera said, while the national average is $1,427. And while Americans spend an average of 2% of their total income on auto insurance — a number the U.S. Treasury Department considers “affordable” — Detroit residents spend 18%. Rivera showed attendees of the event a map of Michigan, divided into ZIP codes that were color-coded by insurance rates. Only a handful of areas fell within the “affordable” range.

“Think about trying to get people to work,” Rivera said. “If you make it practically illegal to do that, that’s going to have big implications.”

One of the most significant implications is that some Michiganders simply forgo driving. According to Rivera, 43% of residents without a car reported having to miss an appointment because they lacked transportation.

Another consequence is that people drive without insurance. More than 20% of drivers in the state don’t have insurance, while the estimated number for drivers in Detroit is 60%.

Rivera said he believes the most unsettling implication, however, is the correlation between the state’s high insurance rates and a decreasing standard of living.

“Report after report says this is how the cycle of poverty begins,” he said. “It’s that first ticket that you can’t pay, so you push it off. Debt accumulates on that ticket. You get stopped again. Another ticket arises, so you try to get insurance because now you’re scared, but you can’t afford the insurance. That cycle perpetuates itself for so many Michiganders across the state.”

Rivera pointed to insurance companies’ use of factors such as credit scores, education levels, and job status as the reason why rates vary so differently among Michiganders. Rivera said this system of using factors not related to driving history hurts the people who need affordable insurance most — the poor and uneducated — because it causes their premiums to increase, particularly in Detroit. He added that high rates also result from systemic abuses of the system, including ambulance-chasing; a lack of fee schedules, which eliminates transparency; and fraudulent claims.

Rivera said he’s extremely optimistic about the auto insurance reforms recently signed into law by Gov. Gretchen Whitmer.

“This bill confronts one of the biggest cost[s] drivers incur, along with guaranteeing some kind of reduction on Personal Injury Protection,” Rivera said. “I think we could probably go further, but you’re going to see reductions in rates for a majority of Michiganders.”

Howard Spence, who served as deputy insurance commissioner for the state of Michigan for 14 years, attended the event.

“I think that this particular presentation was very helpful,” he said. “Aside from any partisan aspects of it, it dealt with a real public policy issue. If we don’t have affordable insurance, do we have insurance at all?”

Michigan lawmakers will continue to face this question in the years ahead.

“As the debate continues in Lansing, the advice that I’ve given to policymakers is to hold people accountable,” Rivera said. “What gets measured gets managed. We want to make sure that as we move forward we are always looking toward the goal of having a system that is affordable and that offers economic opportunity to families across the state.”