"I just didn't know how we were going to pay it." As Detroit prepares to emerge from bankruptcy, its long-term prospects for financial solvency may depend in large part on reversing a decades-long slide in population. But along with the city's crime rate and local income tax, auto insurance rates that are often double or triple what suburban motorists pay are making it expensive for residents to stay — and discouraging newcomers. 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.
S. cities. The report is expected next spring. The prevailing wisdom is that Detroit's insurance rates are largely driven by high theft, pervasive fraud and unlimited medical benefits to accident victims under Michigan's no-fault auto insurance law.
The D-Insurance plan has its skeptics. "I don't believe that the city starting its own insurance company will work at all," said state Sen. Virgil Smith, D-Detroit, who has backed several unsuccessful bills in the Legislature for reducing urban rates. "The fact (is) that you have to purchase unlimited personal injury protection ... that puts the city in line to pay people's medical bills." Duggan himself isn't yet sure whether D-Insurance can solve the rate problem. But in an interview with the Free Press last month, the mayor said it's his preferred option. "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 Detroit's rates.
"The data that we're seeing suggests that Detroiters are running up more in medical claims than other communities. ...
But city and state officials say there are currently no reliable, publicly available figures for the average auto insurance premiums paid by Detroit residents. Free Press interviews with dozens of Detroiters suggest it is common for residents to pay between $200 and $450 a month — $2,400 to a whopping $5,400 annually. Various nationwide surveys, including one by insuranceQuotes.com, have found no cities with higher prices than Detroit.That was 64% below the $48,273 Michigan median income and 71% below the national median of $52,250. "What we do know is the rates are unaffordably high and they have to come down significantly," said Melvin (Butch) Hollowell, the city's top attorney and a former state insurance consumer advocate. Detroit police have estimated that 60% of all Detroit drivers lack auto insurance. It is a misdemeanor to drive in Michigan without insurance, punishable by a fine of $200 to $500 and up to a year of jail time. A one-week policy from one popular carrier, L.A. Insurance, can cost about $250. Former auto insurance salesman Sam Donahoo, 48, of Bingham Farms said his uncle helped run as many as eight LOOK! Insurance offices in Detroit until the ever-rising auto premiums priced out their customers, prompting them to close their last office a year and a half ago.
Donahoo wondered why rates kept going up but "the underwriters never explained it to us." "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,' "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.
" Those who attempt this gambit risk having an accident claim rejected if their insurance carrier finds out. Those individuals also cannot vote in Detroit elections because the address of one's voter registration must match his or her driver's license. 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 Detroit, which had the highest vehicle theft rate in Michigan last year with 1,699 incidents per 100,000 residents, according to FBI statistics.
There are other reasons, too, such as a 1996 law, signed by then-Gov. John Engler, which ended a territorial rating system in Michigan that, in the opinion of auto insurers, forced noncity dwellers to pay higher rates to subsidize the artificially low Detroit rates. 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 Detroit and offer rates outside the city that were low enough to attract customers. With the territorial restrictions lifted, insurers started assigning ratings by ZIP code — resulting in higher Detroit rates. "It allowed the insurers to identify where the costs were coming from. So the rates became more actuarially accurate," said Peter Kuhnmuench, executive director of the Insurance Institute of Michigan, the industry's trade group. 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.
It also provides accident victims with up to $5,189 a month in lost work benefits for up to three years. 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, Michigan motorists were not required to buy insurance if they paid $45 a year into a fund for uninsured people. But as the cost of medical care grew, so did auto rates.
The group has unsuccessfully sought to cap no-fault benefits via legislation amid ferocious opposition from the medical community and accident lawyers. "When you put an unlimited benefit out there, the (medical) providers find it," said Kuhnmuench of the Insurance Institute. Outright fraud is another concern. A National Insurance Crime Bureau report found that questionable medical claims in Detroit jumped 124% between 2009 and 2011, and that the city was responsible for one-third of all such claims in the state.
In testimony last year before a Michigan legislative committee, a State Farm Insurance fraud investigator described how unscrupulous companies have been scouring thousands of police reports for vehicle accidents and referring those involved to certain medical clinics and attorneys, even if the person wasn't injured. 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 $5,200 for an MRI and $7,000 for pain injections, services that hospitals do for less than $2,000 and $500, respectively, according to the testimony by investigator Patricia Parr-Armelagos. Once an insurer has paid $530,000 for an auto injury claim, future expenses for that individual are reimbursed by the Michigan Catastrophic Claims Association.
Laura Appel, a senior vice president for the Michigan Health & Hospital Association, said that auto insurers want to change the no-fault system to grow their own profits by reducing health care services to people who need them. "From the perspective of Michigan hospitals, caring for victims of catastrophic auto accidents and ensuring they get the medical care and rehabilitation they need is our No. 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 Tina Cox, who lives near New Center.
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