In Detroit, Mention of Municipal Insurer Plan Draws Reactions

Mayoral candidate Mike Duggan was at Triumph Church in Detroit last week, appealing to voters there while stumping for the city’s mayoral seat.

One part of his appeal drew applause from the crowd of hundreds: “I intend to start a Detroit auto insurance company,” he reportedly said.

It’s a surefire way to fire up a crowd in Detroit, where drivers face car insurance premiums so high that they resort to misrepresenting their home address to dodge pricey rates—or go without coverage completely.

Insurance officials responded to the plan with similar applause but added that they were guarded about the prospect that Duggan could follow through with his statement.

Addressing auto insurance rates is a resonating campaign message for voters, they told Online Auto Insurance News (OAIN), but Duggan faces a number of complex factors that produce Detroit’s through-the-roof rates.

‘An Enormous Task’

Duggan’s campaign office and spokesman did not return requests for comments on the specifics of the candidate’s plan, but Deadline Detroit was at the event at Triumph Church to report on his comments.

According to Deadline Detroit’s Bill McGraw, an attendee asked Duggan if he would do anything about Detroit residents’ paying higher prices for coverage than suburban residents.

Duggan sympathized with drivers facing high rates, saying his own car coverage premiums doubled when he moved from nearby Livonia to Detroit.

The candidate said that he intended “to start a Detroit auto insurance company” and used the name “D insurance,” according to McGraw, who reported that Duggan also said he discussed discounts for city residents with local body shops.

Duggan said that if he was elected, according to McGraw, he would go after the 80 percent portion of insurance payments that are devoted to collision coverage.” The candidate also said that the city should pursue its own plans instead of waiting on action from state legislators.

McGraw himself wrote that the “bold plan” would be “an enormous task.”

Industry officials agree.

Scott Hummel, a spokesman for the Michigan Association of Insurance Agents (MAIA), told OAIN that Duggan centered on a topic that resonates with Detroit voters as a “bottom-line, cost-of-living issue.”

“But it’s like figuring out lower taxes,” he said about the difficulty of fulfilling such a plan. “I’ve even heard from pastors in Detroit saying they won’t live in the city because of what the cost of auto insurance adds to their monthly bills.”

Jeffrey Junkas, a regional manager for national trade group Property Casualty Insurers Association of America (PCI), told OAIN that he saw the statement as “a political answer to a policy question.”

“I appreciate the candidate’s response but I don’t think a bankrupt Detroit needs its own auto insurance carrier right now,” Junkas said. “[You] can’t buy a Cadillac on a Ford budget, as the saying goes.”

Pricey No-Fault Claims Push Rates Upward

Hummel said he’s seen first-hand what is often described by Detroit’s policyholders and Duggan himself:

Move into the city, then get whacked by significantly higher rates.

Hummel said his son recently moved into Detroit, buying a one-driver, one-vehicle policy.

“I have three drivers, three vehicles and he’s still paying double what I do,” he said.

The problem has even reached the halls of the state Legislature in Lansing, Mich., where Gov. Rick Snyder noted Detroit in his State of the State Address as the nation’s most expensive city for car insurance.

Gov. Snyder offered Detroit’s exorbitantly high rates as a sign that the state needs to reform its no-fault system, the only one of its kind in the U.S. that pays out unlimited, lifetime medical care for injury claims. The National Association of Insurance Commissioners lists Michigan as one of the top 10 “the most expensive states” for auto coverage. And stats from Runzheimer International put Detroit at the top of its list of the priciest U.S. cities for auto coverage.

The Michigan Catastrophic Claims Association (MCCA) was created as a reinsurance entity to back insurers who had to pay the costliest claims for severe, often-debilitating injuries, and charges a $186 per-vehicle fee to insurers that they ultimately pass onto their policyholders.

According to Hummel, that $186 fee burdens both city and state drivers with higher rates.

“If you were to take that assessment fee away, we would drop significantly down the list [of most expensive states for auto coverage],” he said.

The MCCA has faced rough financial seas recently, which Hummel said encapsulate the same problems Duggan could encounter if he tried to create a municipal auto insurer.

“When it comes to [Duggan’s] plan, I say ‘more power to him,’” Hummel told OAIN.”But he’d still have it have it be solvent, so whatever claims come in, he’d have to make sure they’re covered. If he created that company, the question is would he be able to cover the cost of claims?  And would he be able to significantly reduce the price?

Junkas said that the state’s no-fault system produces high costs for claims and exacerbates already-expensive premiums for Detroiters.

“Detroit has high premiums … but you roll that into the fact that there’s unlimited no-fault there and there are cottage industries that form around that,” he told OAIN. “You start seeing attendant care that has no limitations … of course there are cases where an injury requires legitimate attendant care, but in some cases they are, in theory, billing 24/7, 365.”

Hummel said that the state lacks a fraud authority or bureau to root out illegitimate claims for medical compensation.

“We’re one of the few large states not to have something like that,” he said. “Carriers have to be able to weed out some significant fraud on their own, and there’s a lot of it to go around. There’s steering victims to certain doctors, there’s staged accidents. We don’t have a real handle on what the exact cost of all that is, but it adds around 10 percent to the cost of every premium in the state.”

Other forms of fraud aren’t even related to no-fault claims. Some drivers in Detroit simply forgo auto coverage because of its price, while others tell their car insurer that the car is garaged outside of the city, according to Junkas.

“It sometimes becomes a question of feeding the kids or paying your auto insurance,” he said.

Other Crime also Drive Rates Higher

But aside from fraud, there are other car-related crimes in the city to consider.

Hummel said that half of the state’s auto thefts originate from Detroit’s Wayne County.

Michigan’s Help Eliminate Auto Thefts (H.E.A.T.) auto safety group issued an advisory about a rise in carjackings this summer, the season when auto thefts usually see an uptick across the U.S., spurring Detroit residents to team up against the problem.

A stubbornly present crime problem likely means a stubbornly high claims rate—and that’s never good for policyholders.

“Detroit has some of the same problems that other cities have that result in higher premiums: an urban population with a higher rate for accidents and a higher rate for claims in general,” Junkas said.

Junkas also said that PCI has been involved with discussions over the summer with various constituencies on HB 4612, a no-fault reform bill backed by Gov. Snyder.

But uncertainties with what statewide reforms will ultimately look like mean that relief for Detroit is unlikely to come soon.

“[The bill is] really up in the air,” Junkas said. “We’re not really sure where it’s going to go yet or what’s in the mix of reforms.”

(Photo courtesy of Sam Beebe, Ecotrust)

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

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