Despite Michigan’s auto insurance reform law pushing down premiums by an average of 18% since its implementation – the steepest drop in the US – the state still has the most expensive auto policies in the country, a new analysis by University of Michigan’s Poverty Solutions initiative has revealed.
Moreover, the analysts have found that the legislation has failed to reduce disparities in cost by race and geography.
According to the new report, the average car insurance rate in the state went down from $3,106 in 2019 to $2,535 last year. During the period, auto premiums in Detroit dropped from $6,314 to $5,146, registering the same rate of decline (18%).
However, average rates in the city still accounted for 18% of its residents’ median income, which was significantly above the 2% threshold that the US Department of Transportation has set for auto insurance to be considered affordable.
The 2019 law also bars insurance companies from basing premiums on zip codes and other non-driving factors, including race, gender, marital status, and credit score. Despite this, the analysts found that insurance rates were still “highly correlated with race, more so than geography.”
According to the report, the average premiums for the 37 zip codes across Michigan where the majority of residents are Black was $5,500 before the law was implemented. The amount was significantly higher than the state-wide average of $3,106.
“The 2019 reform law was a first step, but lawmakers should not be content,” said Amanda Nothaft, senior data and evaluation manager at Poverty Solutions and co-author of the report. “More must be done to eliminate discriminatory rate-setting practices and further reduce premiums.”
“We also need to consider the impact on people who have been catastrophically injured in auto accidents and ensure medical providers are appropriately reimbursed for long-term care,” she added.
The reform law also eliminated mandatory unlimited personal injury protection (PIP) coverage and enforced fee limits for medical care related to injury accidents covered by insurance.
According to the analysts, the method used to cap medical fees may be unnecessarily stringent and out of line with national peers, causing a crisis in access to care for victims of catastrophic accidents that occurred prior to reform.
The authors also offered recommendations to further reduce premiums and address the unintended consequences of reform that led to some catastrophic accident victims losing access to medical care.
“While unlimited personal injury protection coverage is no longer mandatory, Michigan is still an outlier in the amount of PIP that drivers have to purchase,” the analysts wrote. “Offering more PIP coverage options would help reduce rates overall.”
To address racial disparities in auto insurance rates, the researchers suggested that the factors insurers use to set premiums be “more regulated” by establishing mandatory driving-related factors that must carry a certain weight in the calculation.
“The 2019 reform prohibited the use of certain non-driving factors, but insurance companies can still use proxies for those factors — like ‘territories’ instead of zip codes and insurance scores that include a credit score component — that reinforce insurance redlining,” the researchers noted.
The analysts also urged policymakers to revisit reimbursement rates for medical procedures not included in the Medicare fee schedule.
“Containing the medical costs for auto accident victims is key to reducing auto insurance costs, but the sharp reduction in reimbursement rates for certain services under the 2019 reform has forced some medical providers out of business and jeopardized access to long-term care for some catastrophic accident victims,” the researchers wrote.
