Michigan’s Auto Insurance Rates Aren’t Highway Robbery

In most games, fair play is understood as playing by the rules and reaping rewards or penalties within the game’s parameters. Yet for many adults in the real world, the concept of fair play is not nearly as clear.

Is it fair for Detroit drivers to pay the nation’s highest average auto insurance premiums at more than $5,000 a year? According to a group called the Fair and Affordable Insurance Rates (FAIR), the answer is no — and it has a plan to fix that problem.

With the apparent support of state Sen. Hansen Clarke, D-Detroit, FAIR submitted a ballot initiative to reduce insurance premiums for drivers in Detroit. But will it? The answer again is no — and it certainly will not make the rates fair.

FAIR wants to reduce home, auto and business insurance premiums 20 percent and cut auto premiums an additional 20 percent for good drivers. It also wants to prevent insurers from relying on credit history, occupation, location and education to set rates, and from "unfairly" cancelling coverage.

The group claims that this would reduce the cost of insurance. However, it is more likely that if these measures are passed, rates throughout Michigan will rise and availability will diminish as insurers leave for other states where they are free to base their rates on the factors they know correlate to risk.

In fact, these proposals ignore the fundamental reasons why insurance rates in Detroit are high. As we have seen in other states, seeking to suppress rates and control how insurance companies determine rates does not result in cheaper more available insurance. In New Jersey and Massachusetts, such attempts resulted in insurers fleeing those states.

In Florida, property insurance rates have been strictly controlled and private insurance companies have been forced to compete with a taxpayer-backed public property insurer. As a result, rates have continued to rise, along with the state’s liability. In addition, many insurance companies have stopped writing policies, thus forcing more residents onto the public insurer and pushing the state toward bankruptcy.

In Florida, rates are lower than they would have been for coastal residents, but they are higher throughout the state than they would be in a free market. All this has done is to encourage more people to build and buy along the hurricane-prone coasts. Everyone in the state ends up paying for those residents who take the greatest risks. Is that fair?

If reformers really want to reduce the cost of insurance for consumers in Michigan and they want people to pay fair rates, they must reduce the cost of writing auto insurance in Michigan. One way to do this is to allow consumers and insurance companies to choose the amount of insurance they want to buy.

Michigan is the only state in the nation that requires drivers to purchase personal injury insurance with unlimited medical coverage. This is one reason that the average claim in Michigan has risen 250 percent in the past decade.

Allowing insurers the freedom to offer the products they wish to consumers and to determine the premiums that they believe reflect the risk of certain drivers may not solve all of Michigan’s auto insurance problems instantaneously, but increasing the controls on insurance companies will potentially drive insurers from the state, decrease the availability of insurance, and simply exacerbate the problems in Michigan’s auto insurance market.