Auto Insurance Rates Put The Brakes On Detroit
By JC Reindl, Detroit Free Press |
Then they encountered
Reid, now 45, recalled how the first agent they visited quoted a
"It was a real shocker. I was under the impression from my American friends that insurance was inexpensive here," said Reid, who had been accident-free for more than two decades and later found a
As
The high rates could threaten the momentum behind the mini-boom of new and redeveloped apartment buildings opening in and around downtown, as residents are left with less money in their pockets for market-rate rents and visiting the restaurants, bars and shops that are popping up.
"That's a pretty big chunk of money going out of your disposable income," he said. "It does have a negative psychological effect when your monthly payment on your car insurance is more than your car payment."
In his first State of the City address in February, Mayor
Such a program would be unique among large U.S. cities. The report is expected next spring.
The prevailing wisdom is that
"I don't believe that the city starting its own insurance company will work at all," said state Sen.
Duggan himself isn't yet sure whether
"The question is: Can we come up with a plan that we can demonstrate objectively will cost less money than the products being offered," he said.
Duggan said he was surprised, for instance, by the recent findings of a volunteer team of insurance experts who looked into
"The usage of medical facilities is driving more of the costs than car thefts, which is something we wouldn't have thought when we started out," said Duggan, who was the top executive at the
The average annual auto premium per car in
But city and state officials say there are currently no reliable, publicly available figures for the average auto insurance premiums paid by
Affording such rates can be tough for many Detroiters, as the city's median household income in 2013 was
"What we do know is the rates are unaffordably high and they have to come down significantly," said
The insurance dodge
Proof of insurance is required to register a vehicle in
A one-week policy from one popular carrier,
Former auto insurance salesman
He said most Detroiters were getting quotes of
"At the end, I was literally telling people on the phone, 'You don't want to hear this quote.' And they were like 'tell me,' and I go, 'OK, and the next thing you know it's click,' " he recalled.
"If you can't afford car insurance, you can't afford to drive out to the best jobs," Donahoo said. "That was what really depressed me in the end. You want to help these people, but you couldn't."
Besides skipping insurance, Detroiters have found other ways to dodge the high rates.
Many residents register their vehicles and licenses outside the city, using a family member's address.
"When my friend was getting a new car, I actually advised him to do the same thing," Atchley said. "Don't change your address from
Those who attempt this gambit risk having an accident claim rejected if their insurance carrier finds out. Those individuals also cannot vote in
ZIP codes, credit scores
Nationwide, it is common for urban dwellers to pay more for auto insurance than people in suburban and rural areas, a result of higher traffic densities, crime and vehicle injury claims within cities.
Those factors all apply to
There are other reasons, too, such as a 1996 law, signed by then-Gov.
The territorial system forbade insurers from charging rates that were less than 45% of the highest territory and imposed tighter rules for adjacent territories.
Auto insurers argued that they couldn't both recoup their high theft losses in
"It allowed the insurers to identify where the costs were coming from. So the rates became more actuarially accurate," said
But others see ZIP code rating as legalized insurance redlining that is unfair. "People really should be charged more on how they drive rather than where they live," city attorney Hollowell said.
Also controversial is the use of credit scores and educational background in setting rates, a practice upheld by the
Critics contend that credit scoring penalizes poor people and rewards those who are better off.
"It makes no sense that those people who are least able to afford it are paying twice as much. It means you can legally discriminate against the poor," said
Unlimited coverage
Of all the reasons
The no-fault law is considered a blessing for those who suffer catastrophic injuries. The system started in 1973 as a way to reduce insurance costs by eliminating the need for accident victims to sue the other driver after a crash. Prior to the law,
But as the cost of medical care grew, so did auto rates.
The insurers' trade group says the bottomless benefits have been an incentive for
"When you put an unlimited benefit out there, the (medical) providers find it," said Kuhnmuench of the
Outright fraud is another concern. A
In testimony last year before a
The person's auto insurer could then be billed for hours of physical therapy, despite spending as little as 15 minutes in a clinic. These schemes bill as much as
Once an insurer has paid
"From the perspective of
The city hopes its study will be done this spring. But that means many more months of big payments for tens of thousands of Detroiters like
Cox, 37, has been paying high auto rates for years. She owes
"The mayor says he's going to try to do something, so I'm waiting," she said.
Contact JC Reindl: 313-222-6631 or [email protected]. Follow him on Twitter @JCReindl. Staff writer
Likely factors driving
--High car theft and burglary rates.
--Because of higher traffic volumes,
--Pervasive fraud involving therapy and chiropractor schemes. Questionable medical claims in
--Unusually high number of medical claims after crashes.
--Residents with lower credit scores.
Source:
How bad is medical-claim fraud?
A
--Unscrupulous companies buy thousands of police reports for vehicle accidents, referring those involved to certain medical clinics and attorneys -- even if the person wasn't injured.
--The company's solicitors will falsely claim they are from an insurance company to give legal guidance.
--Body shops, tow companies and paramedics can get payments of
--Solicitors may arrange for nonmedical transportation companies to take patients to medical clinics, billing exorbitant fees that are paid under no-fault insurance. Fees can reach
--Patients can spend as little as 15 minutes per visit, but some chiropractors and physical therapists will bill for several hours.
--Some clinics charge insurers
--Diagnostic tests are frequently misinterpreted to magnify the severity of a patient's condition -- leading to more treatment and unnecessary surgery.
--Spinal injections for pain billed at
Source: Written testimony for fraud investigator
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