Study: Car insurance costs more for working class

Jonathan Oosting
Detroit News Lansing Bureau

Lansing – Working-class Michigan drivers pay significantly more for mandatory auto insurance policies than white-collar executives, according to a new study alleging “socioeconomic discrimination” by insurance companies in a state known for unusually high rates.

A factory worker living in Detroit, Flint or Warren could be charged an average of $265 more for minimum insurance than an investment banker with an identical driving record and vehicle, according to a report prepared by California-based consultant Doug Heller, who documented 240 premium quotes obtained online from six major Michigan insurers.

Controlling for other factors, including perfect driving records, Heller concluded most insurance companies charge Michigan drivers more if they have blue-collar jobs or are unemployed, don’t have a college degree and rent rather than own their home.

“What we see here is a surcharge on people who have low socioeconomic status,” Heller said. “They are good drivers, they’ve never filed a claim, they’ve proven themselves to be high-quality risks, but these companies discriminate based on their socioeconomic status. And that’s a huge problem, especially when you have such high rates to begin with.”

The study was commissioned by the Coalition Protecting Auto No-Fault, a group that supports Michigan’s unique insurance law but is open to some reforms. It was released amid a long-running debate over insurance rules that could heat up this fall in the Michigan Legislature.

The Insurance Alliance of Michigan dismissed the study as a “distraction that completely ignores the fact that rampant fraud, the lack of any cost controls on medical providers and hospitals, and the requirement that all Michiganders purchase unlimited, lifetime medical benefits all conspire to make Michigan one of the most expensive states in the nation to purchase car insurance.”

“This flawed study is designed by those who profit from the status quo to confuse and distract attention from the real causes of Michigan’s skyrocketing insurance rates and from real reforms that are needed to fix our broken, outdated system,” general counsel Dyck Van Koevering said in a statement.

Gov. Rick Snyder has long pushed for auto no-fault reforms and said last week a fee schedule or other cost controls on medical providers would be a meaningful change. The new CPAN report argues stronger consumer protections could reduce rates and lead to fewer uninsured drivers.

For his study, Heller obtained premium quotes for a 30-year-old woman living in Detroit, Flint, Grand Rapids, Howell, Iron Mountain, Ludington, Owosso and Warren. Her address did not differ whether she said she owned her own home or rented it.

In all instances, the woman was unmarried, owned a 2007 Ford Fusion S, drove 10,001 miles per year, had current auto insurance and health insurance that provides coordinated primary coverage, and had a perfect driving record.

Heller found that insurance companies tried to charge her an average of $233 more per year – or about 12 percent – for basic auto insurance if she had a blue-collar job or was out of work, didn’t have a college degree and rented her home.

In Detroit, a homeowner attorney with a juris doctor degree would pay about $3,843 a year for no-fault auto insurance, according to the study. The same resident would pay $4,487 if she were unemployed, lacked a high school diploma and rented.

The premium quote discrepancies were highest for Liberty Mutual, Progressive and Esurance, which quoted out-of-work residents an average of $483 more than lawyers with the same driving record, according to the report. Not all companies considered the non-driving factors, including State Farm and Allstate, which did not alter rates based on a drivers’ education level or job title.

Michigan, like most states that mandate auto insurance, requires that rates “shall not be excessive, inadequate, or unfairly discriminatory.”

The CPAN report argues the state Department of Insurance and Financial Services should require insurance companies to explain why they are charging good drivers higher rates because of their job title, education level and homeowner status. If they can’t, it shouldn’t be allowed, according to the report.

“Other Michigan laws already prohibit insurance companies from considering other personal characteristics, such as race or national origin, when setting premiums,” Heller wrote. “Similarly, the Legislature could determine that socioeconomic discrimination is not an actuarial question but a matter of public policy.”

Minnesota prohibits the use of homeownership status in auto insurance pricing, according to the report. A 1998 ballot proposal approved by California voters prioritized driving-related factors for premium calculations, including safety record, annual miles driven and years of experience.

Michigan legislators “could fix these problems with laws to protect consumers from this kind of pricing,” Heller said.