Michigan Auto Insurance Remains High With Persistent Racial Disparities Despite Falling Costs
ANN ARBOR – Michigan’s auto insurance reform law contributed to an 18% drop in average premium costs from 2019 to 2020 – the largest drop in the country during that period, according to a new analysis from Poverty Solutions at the University of Michigan.
However, Michigan still has the most expensive auto insurance in the United States, and a 2019 law failed to reduce cost disparities across race and geography. A new guidance note, “Building on Michigan’s auto insurance reform lawOffers recommendations to further reduce premiums and remedy the unintended consequences of the reform which have led some victims of catastrophic accidents to lose access to medical care.
âThe 2019 reform law was a first step, but lawmakers should not be satisfied with it. More needs to be done to eliminate discriminatory pricing practices and further reduce premiums. We also need to consider the impact on people who have been catastrophically injured in car crashes and ensure that medical providers are properly reimbursed for long-term care, âsaid Amanda Nothaft, senior manager data and evaluation at UM’s Poverty Solutions, who co-authored the policy brief with Patrick Cooney, deputy director of policy impact at Poverty Solutions.
Cooney also co-wrote a Guidance Note March 2019 who examined the cost of auto insurance in Michigan as an economic mobility issue that has held back people statewide – and particularly in Detroit, where average premiums are more than double the average for the ‘State – to get out of poverty.
This research informed the bipartite auto insurance reform law passed in May 2019 which began to take effect in July 2020. Implemented policy changes recommended by Poverty Solutions included the elimination of mandatory and unlimited coverage. Personal Injury Protection (PIP), restrict the use of non-driving factors such as postcode and credit score to set auto insurance rates, and enforce cost limits for medical care related to personal injury accidents covered by auto insurance .
The new analysis–based on data from The Zebra, an auto insurance comparison marketplace that collects pricing information–shows that the reforms have already reduced costs. The main findings include:
- Michigan’s average auto insurance rate fell from $ 3,106 in 2019 to $ 2,535 in 2020, an 18% drop that still leaves Michigan with the highest average auto insurance costs in the country.
- Auto insurance costs in Detroit have seen the same rate of decline, from $ 6,314 in 2019 to $ 5,146 in 2020. Even with these cuts, average rates in Detroit still represent 18% of the city’s median income. ; the US Department of Transportation defines auto insurance as affordable when it costs no more than 2% of a household’s income.
- Despite new restrictions on the use of non-determining factors to set rates, auto insurance costs are still strongly correlated with race, more than geography. Across Michigan, the average premium in 2019 for the 37 zip codes where the majority of residents are black was $ 5,500, compared to $ 3,106 for the state average.
- The method used to cap medical costs can be unnecessarily strict and out of step with national peers, causing a crisis in access to care for victims of catastrophic accidents that occurred before the reform.
The guidance note also includes recommendations on how to further reduce rates and ensure Michigan’s auto insurance system is a barrier to economic mobility. While unlimited PIP coverage is no longer mandatory, Michigan remains an outlier in the number of PIP drivers they must purchase. Providing more PIP coverage options would help lower rates overall.
To address persistent racial disparities in auto insurance rates, researchers recommend greater regulation of the factors used to set rates by establishing mandatory driving factors that must have some weight in the calculation. The 2019 reform banned the use of certain non-determining factors, but insurance companies can still use proxies for these factors–like “territories” instead of zip code and insurance scores that include a credit score element–that reinforce redlining assurance.
Another recommendation is to review reimbursement rates for medical procedures not listed in Medicare’s fee schedule. Containing the medical costs of road accident victims is key to lowering auto insurance costs, but the sharp reduction in reimbursement rates for some services under the 2019 reform has forced some healthcare providers to close their doors and compromise access to long-term care for certain catastrophic accidents. victims. Lawmakers could restructure the Catastrophic Claims Fund to support long-term care facilities and cover higher reimbursement rates.
âThe Michigan Disaster Compensation Fund could play a much larger role in providing long-term support for those catastrophic in a car accident,â Cooney said. “The 2019 auto insurance reform made significant changes that lowered rates for Michigan drivers. But there is much more to be done. We need to recognize what is working and fix what is not.“