Michigan’s auto insurance rates keep people from getting out of poverty | Opinion – Detroit Free Press

Escaping the cycle of poverty often means getting on the road. Whether to get to a new job, go back to school, or make it to a doctor’s appointment, reliable and affordable transportation can make the difference in moving up the economic ladder. In Detroit, where public transportation is under-resourced, and many entry-level job opportunities are located in surrounding suburbs, reliable access to transportation often means reliable access to a car. 

However, because of Michigan’s auto insurance laws, legal car ownership is extremely difficult for the vast majority of Detroiters and thousands of low-income Michiganders, erecting a huge barrier in their paths to economic opportunity.

Detroit consumers face the most expensive auto insurance rates of any city in the country, with an average annual premium of $5,414.This is roughly double the state average, which is already nearly twice the national average. According to the U.S. Treasury Department’s Federal Insurance Office, auto insurance rates are considered “unaffordable” if premiums exceed 2 percent of an area’s median household income.  For the median household in Detroit, earning $30,344, the average annual premium eats up 18 percent of household income. In contrast, car insurance accounts for between 2 and 4 percent of pre-tax income in peer cities such as Cleveland, St. Louis and Chicago.

And it’s not just Detroit. Our analysis of auto insurance rates across the state — using data from The Zebra, an insurance comparison site, and the American Community Survey — found that average auto insurance rates are unaffordable in 97 percent of all Michigan ZIP codes.

We mapped and examined the cost of auto insurance shows insurance rates for a “base profile” insured driver as a percent of pre-tax income for every ZIP code in Michigan. Lower-income communities across the state bear the largest burden, with average rates representing between 8 and 36 percent of pre-tax income in every ZIP code in Detroit, Pontiac, and Flint. But even in wealthier suburbs, like Royal Oak, Farmington Hills, and Livonia, average rates exceed the affordability threshold.

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For low-income motorists, the situation is even worse. For a four-person household with incomes at the federal poverty level ($25,750), their annual auto insurance premium would have to be $515, or $2,095 less than the state average, to be considered affordable. For the 14 percent of Michiganders with incomes below the federal poverty level car insurance can simply be out of reach.

A lack of affordable auto insurance options stifles economic opportunity across the state in three major ways. First, the high price of insurance makes legal car ownership nearly impossible for low-income families, preventing individuals from getting to the places they need to go to pursue economic opportunity.

Second, it’s a huge drain on low-income families’ scarce resources. Every dollar spent on auto insurance is a dollar that isn’t spent on higher education, healthy food, quality housing and other investments that promote a higher quality of life.

Finally, the estimated 20 percent of Michigan drivers and 60 percent of Detroit drivers who do not purchase insurance, are placed at significant financial and legal risk. Drivers caught driving without insurance risk facing a misdemeanor charge punishable by up to one year in jail and a fine of $200-$500, setting an individual back — perhaps permanently — in their pursuit of economic opportunity.

Reform is necessary, and we know what we need to do:

• Michigan is the only state in the country that requires drivers to purchase unlimited Personal Injury Protection coverage; we need to allow consumers to select the coverage that best fits their needs, as is done in the other market drivers go to for treating personal injuries — the health insurance market.
• Michigan does not impose fee schedules for medical care, creating a clear path for medical providers and trial lawyers to earn outsized profits from PIP payouts. We need to use fee schedules for medical procedures covered by auto insurance, just as we do for Medicare or Workers Compensation.
• And finally, Michigan enables insurers to use a range of non-driving factors in pricing insurance, leading in part to the dramatically different rates faced in Detroit versus surrounding suburbs. We need to limit the extent to which insurers can use non-driving factors, most notably credit scores.

There is no doubt that the reforms needed to drive down costs will be difficult to make. But they are no harder than the budget choices millions of Michiganders are making every day to meet their legal obligations as drivers in this state.

And while our current auto insurance laws were crafted with the noble intent of caring for the seriously injured, it is time to acknowledge that in practice the status quo is failing to provide affordable coverage for Michigan’s most vulnerable drivers. 

With sensible reforms to our auto-insurance policies, we can dramatically lower transportation costs facing families across Michigan, and dramatically improve economic opportunity.

Josh Rivera is a data and policy adviser at Poverty Solutions at the University of Michigan, which partners with policymakers and community to find new ways to prevent and alleviate poverty. Pat Cooney is the associate director of the Detroit Partnership on Economic Mobility for Poverty Solutions at the University of Michigan.
 

Source: freep.com