Car insurance in Detroit continues to be a racket.

[Zacha341]

Yes. I've long [[over a decade) given up on the 'name brand' insurance companies [[Allstate, AAA, Geico, Nationwide etc), and even still the rate is getting hard to manage.

[MizMotown]

Yea, me too. That is why I went with Unitrin and American Fellowship because they were independant. Now Untrin [[Kemper Direct) will not do business in MI and American Fellowship is in liquidation. They just can't make money with the ridiculously high rates and competition from the brand names that advertise all over the place.

For me it's just crazy that a couple of years ago I was paying $113.00 a month for full coverage in INKSTER/DEARBORN HTS. area code so just over $1200.00 a year. Right now I'm paying $1200.00 for PLPD. For a new car the past 4 quotes I've gotten for full coverage is DOUBLE that for WESTLAND. $199.00 for full coverage. If anyone has a company that can beat that by $20 or $30 bucks let me know. No accidents/tickets/solid insurance score.

Yes. I've long [[over a decade) given up on the 'name brand' insurance companies [[Allstate, AAA, Geico, Nationwide etc), and even still the rate is getting hard to manage.

[MizMotown]

Interesting blog about worst Michigan insurance companies...

http://www.michiganautolaw.com/auto-...nce-companies/

[Dumpling]

MizMotown, I found that blog to be very interesting too! Thank you!
I liked the mention of four insurance firms that the auto lawyers would
recommend to be helpful.
In a mailing my state rep mentioned the $186 for the catastrophic claims insurance as something that the house is looking at and working on...but
this is not so much of the referenced $10,000 policy to really be a big issue by itself.
The state house will do what? Cut it out entirely? Bring down the $10,000
policy to about $9800? I may be tax'n'spend but I'm with Brooks Patterson
on this one.
My own no fault policy is about $900 annually of which I suppose about 21 percent is for the CCI. I have an older Focus that is all paid for.

[erikd]

If the insurance companies are charging rates in Detroit which are "unrealistically high" there should be an avenue for other insurance companies to move in and undercut them. The fact that other companies are not rushing in to compete would indicate that the insurance companies are realistically pricing the risk of doing business in Detroit.

This is a good argument in theory, and it would be valid if the auto insurance market in Michigan actually ran under free market principles. However, the state of Michigan requires all drivers to purchase auto insurance as a condition of vehicle ownership, and this government mandated demand distorts the normal supply and demand relationship that sets prices in an actual free market.

If drivers were given the option of not purchasing auto insurance, I think that we would see much more price competition, which would result in lower rates. As long as the state forces us to purchase insurance in order to drive legally, the insurance companies have us over a barrel. This isn't like buying cheeseburgers or t-shirts. We can boycott Wal-Mart and fast food places, but we can't boycott the insurance companies because the government forces us to buy their service.

Due to the fact that the government forces us to purchase their insurance, coupled with the fact that there are relatively few options in the insurance market, there is no market incentive for insurance companies to significantly lower their rates in order to capture an increase in market share. It seems clear that there is a significant disconnect between the risk and the premiums charged in the Detroit auto insurance market, which is likely the result of de facto redlining and collusion.

Theoretically, the insurance companies could significantly reduce rates in Detroit, or at least in some areas of Detroit, but what is their economic incentive to do so? If AAA, State Farm, Allstate, and the other handful of insurance companies can bleed the low-risk drivers in Detroit under the excuse of high theft rates in the city at large, what is the benefit for them to start a price war in this lucrative captive market? They know that they have us by the balls, and they aren't about to let up, because the government forces us to by their product, no matter what the cost, AND they don't have to justify their premiums or explain them to the public.

To address the suggestion that new start-up insurance companies could come in and undercut the inflated premiums charged by the major insurance companies... that is quite unlikely, for a number of reasons.

First off, the insurance game is very volatile until you reach a point of having a huge number of people paying premiums, who are spread out economically, and more importantly, geographically. If you only have 50,000 insured customers in one geographic location, a localized catastrophe or short-term increase in claims can easily ruin your company.

Secondly, the start up and operational costs of running an insurance company are astronomical, and essentially prohibit small start-ups from entering the market. You can open a gourmet or ethnic market and compete with with Wal-Mart or Kroger by offering products and services that they don't, and/or by serving niche markets that the big chains ignore. You can also compete with the big national chains if you are running a bar, restaurant, clothing store, or anything else that isn't just a straight-up commodity like insurance.

There just isn't a way for a small start-up insurance company to provide a sales and service experience significantly better than the big players that would be enough of a factor to entice people to switch over. Also, a start up insurance company simply can't compete on price because of the huge amount of fixed expenses needed to run that type of business. It doesn't matter if you have 50,000 insureds or 500,000 insureds, you still need sales, claims, legal, underwriting, processing, etc., and the cost of starting up and running all of that infrastructure is not significantly less expensive for a small insurance company that is for a huge insurance company ten times larger.

Thirdly, the economic market in the city of Detroit is completely misunderstood and baffling to the vast majority of people who are not intimately familiar with the city, the region, and how things work here. Most large companies simply avoid Detroit, because their suburban-based economic models do not work in urban ares, and they especially don't work in Detroit.

Take the national grocery store model for example: Kroger built a store in Detroit, on Gratiot, between 7 and 8 Mile, because their demographic modelers in Cincinnati saw that there were high traffic counts on Gratiot and 8 Mile, and that there were X number of households within a 2-3 mile radius of that location. The people in Ohio who look at these statistics are not aware of the fact that there are essentially no people from Warren who will cross 8 Mile to shop at a Kroger in the city. This doesn't make sense to a person who has never been to SE Michigan, but it is obvious to any resident of the city of Detroit or Warren.

On the other hand, Whole Foods opens a store at Mack and John R, and the place does gangbuster business and exceeds all expectations, even though that intersection has lower traffic counts and fewer households within a 2-3 mile radius.

The reason why Whole Foods was able to able to identify and capitalize on the Detroit market is because they are more of a niche specialty company, as opposed to purely volume-driven company like Kroger.

While we are seeing many specialty stores, niche market players, and local business having success in Detroit by capitalizing on the markets left underserved by the large national players, we are not seeing the same thing form insurance companies, because there is no such thing as an insurance company that specializes in targeting low-risk urban auto owners.

Due to the mandatory auto insurance requirements in Michigan, there is no significant economic incentive for insurance companies to offer more competitive rates in Detroit.

[Hermod]

Due to the mandatory auto insurance requirements in Michigan, there is no significant economic incentive for insurance companies to offer more competitive rates in Detroit.

Except that virtually everywhere else in the country auto insurance is mandatory yet companies compete on rates and have large billboards
and TV commercials touting their business and most places have lower rates.

I live in a very urban area of southeast Florida which has a very high rate of auto theft and auto insurance fraud and is infested with ambulance chasing lawyers. I pay about $400 a month to fully insure three cars [[2012, 2012, and 2014) with a high level of liability. PD, low deductible comprehensive and collision, and uninsured motorists. When my insurance is about to renew, my mailbox is flooded with advertising from insurance companies and local agents.

Why do these companies collude only within the city limits of Detroit and compete elsewhere?

[Honky Tonk]

Interesting blog about worst Michigan insurance companies...

http://www.michiganautolaw.com/auto-...nce-companies/

Thanx for posting this link. It's getting time for me to re-up, and I'm definitely going to do some comparative shopping with top 4 companies listed within the article. News I can use.

[mwilbert]

Except that virtually everywhere else in the country auto insurance is mandatory yet companies compete on rates and have large billboards
and TV commercials touting their business and most places have lower rates.

Agree with this. Auto insurance is mandatory almost everywhere; it cannot be the reason Michigan or Detroit rates are unusually high.

I live in a very urban area of southeast Florida which has a very high rate of auto theft and auto insurance fraud and is infested with ambulance chasing lawyers. I pay about $400 a month to fully insure three cars [[2012, 2012, and 2014) with a high level of liability. PD, low deductible comprehensive and collision, and uninsured motorists. When my insurance is about to renew, my mailbox is flooded with advertising from insurance companies and local agents.

Why do these companies collude only within the city limits of Detroit and compete elsewhere?

I think you partially answered your own question--from what I can see there are not so many serious competitors in the Detroit market as you describe in your area, and it is much easier to collude when there are fewer players.

The second reason is that Florida appears to have some actual rate regulation. Insurers have to provide some justification for at least some of their rates, such as coverage for PIP, which insurers in Michigan do not. This has multiple effects. It both makes it harder for them to conceal whatever level of profitability they have and makes it less attractive for them to collude, since presumably the upside is limited by the rate regulation.

[Hermod]

The second reason is that Florida appears to have some actual rate regulation. Insurers have to provide some justification for at least some of their rates, such as coverage for PIP, which insurers in Michigan do not. This has multiple effects. It both makes it harder for them to conceal whatever level of profitability they have and makes it less attractive for them to collude, since presumably the upside is limited by the rate regulation.

Then why Detroit? What are the Michigan insurance rates like in Da Yoopeee? It sounds like doing insurance business in Detroit is so difficult that the companies raise their rates to discourage business while soliciting business elsewhere in the state.

[mwilbert]

Then why Detroit? What are the Michigan insurance rates like in Da Yoopeee? It sounds like doing insurance business in Detroit is so difficult that the companies raise their rates to discourage business while soliciting business elsewhere in the state.

As I'm sure you know, Michigan rates are the highest in the country in general. Detroit rates are just an [[large) increment on top of that. But yes, my hypothesis is that insuring cars in Detroit has sufficient differences from the norm in terms of what an insurer has to deal with that most of them don't want to bother, and the ones that do get over-compensated for that willingness because the level of over-compensation is not transparent enough to draw many new entrants, and the existing players find it more profitable not to compete too hard.

But it is only a hypothesis. I don't think the data is available to prove or disprove it , and it may be that the rates in Detroit simply reflect the actual loss history of the insurers.

[Wesley Mouch]

Except that virtually everywhere else in the country auto insurance is mandatory yet companies compete on rates and have large billboards
and TV commercials touting their business and most places have lower rates.

I live in a very urban area of southeast Florida which has a very high rate of auto theft and auto insurance fraud and is infested with ambulance chasing lawyers. I pay about $400 a month to fully insure three cars [[2012, 2012, and 2014) with a high level of liability. PD, low deductible comprehensive and collision, and uninsured motorists. When my insurance is about to renew, my mailbox is flooded with advertising from insurance companies and local agents.

Why do these companies collude only within the city limits of Detroit and compete elsewhere?

On the other hand, why would insurance companies choose Detroit to have high rates. Do you really think they sit in a room and say 'hey, let's hit those rich Detroiters with high rates. They won't complain'.

I do think we need more transparency, but I don't see that the conspiracy theory here makes any sense whatsoever. Sure, someone in a NYC insurance agency really thinks about Detroit rates to make a profit?

[mwilbert]

On the other hand, why would insurance companies choose Detroit to have high rates. Do you really think they sit in a room and say 'hey, let's hit those rich Detroiters with high rates. They won't complain'.

No, but they might think "Let's hit those poor Detroiters with high rates. They don't have the clout to complain effectively." Not that I think that is exactly what their thought process is. It is more likely "there isn't much competition in this market, no need to lower rates to keep market share."

I do think we need more transparency, but I don't see that the conspiracy theory here makes any sense whatsoever. Sure, someone in a NYC insurance agency really thinks about Detroit rates to make a profit?

Yes. If there is a single thing that an insurance company does, it thinks very hard about what rates it should set to maximize its profits. Since insurance is regulated state by state, every single insurance company evaluates how it sets its rates state by state, and has to look at those rates individually, including whatever zones may exist within the state for things like property or auto insurance.

[Hermod]

Yes. If there is a single thing that an insurance company does, it thinks very hard about what rates it should set to maximize its profits. Since insurance is regulated state by state, every single insurance company evaluates how it sets its rates state by state, and has to look at those rates individually, including whatever zones may exist within the state for things like property or auto insurance.

Even in a monopoly situation there are "price points" such that you will get maximum return from a given price because if you price it higher, people will do without that particular good or service. In a monopoly situation, you aim for the "sweet spot" because that maximizes your profits. I think Detroit insurance is priced so high because the insurance companies just do not want the business.

[Wesley Mouch]

Yes. If there is a single thing that an insurance company does, it thinks very hard about what rates it should set to maximize its profits. Since insurance is regulated state by state, every single insurance company evaluates how it sets its rates state by state, and has to look at those rates individually, including whatever zones may exist within the state for things like property or auto insurance.

Yes... that certainly is a single thing insurance companies do... but why just Detroit? why just Michigan? What makes us uniquely able to be abused -- while Gary Indiana, Newark, St. Louis, aren't? Is this a unique situation? It seems so. And if so, why? What makes us so specially abusable?

[mwilbert]

Yes... that certainly is a single thing insurance companies do... but why just Detroit? why just Michigan? What makes us uniquely able to be abused -- while Gary Indiana, Newark, St. Louis, aren't? Is this a unique situation? It seems so. And if so, why? What makes us so specially abusable?

Michigan, because of its unique approach to no-fault that has evolved into something quite problematic. Michigan, because of its unusually hands-off approach to insurance regulation. Detroit, because it is in Michigan, and because the unusual levels of crime [[obvious) and societal dysfunction [[speculatively) both raise costs and scare off potential competitors.

[Wesley Mouch]

Michigan, because of its unique approach to no-fault that has evolved into something quite problematic. Michigan, because of its unusually hands-off approach to insurance regulation. Detroit, because it is in Michigan, and because the unusual levels of crime [[obvious) and societal dysfunction [[speculatively) both raise costs and scare off potential competitors.

We agree 100%

Four issues:
1) approach to no-fault
2) hands-off insurance regulation
3) high crime, thus high costs to insurers
4) societal dysfunction

#1 & #2 should be something Duggan might tackle. Its a problem state-wide, and will only help him when he runs for governor. Might even help when he runs for president.

#4's degree of dysfunction is clearly higher in Detroit

#3 I'm less sure of... we may be high crime, but are we that unique? East St. Louis anyone?

[mwilbert]

The effects combine. East St. Louis has a lot of crime, but it is not in Michigan. The data on average car insurance costs is inconsistent and I wouldn't put too much stock in the precise numbers, but according to the ranking below, Michigan is #1 at $2551/year while Illinois is #32 at $1370/year. You would have to have a lot of crime to make up that kind of difference. I also don't know what they use for rate-setting criteria in Illinois.

[Hermod]

We agree 100%

Four issues:
1) approach to no-fault
2) hands-off insurance regulation
3) high crime, thus high costs to insurers
4) societal dysfunction

#1 & #2 should be something Duggan might tackle. Its a problem state-wide, and will only help him when he runs for governor. Might even help when he runs for president.

#4's degree of dysfunction is clearly higher in Detroit

#3 I'm less sure of... we may be high crime, but are we that unique? East St. Louis anyone?

High crime in the sense of theft, fire, and vandalism would be reflected in the rates for comprehensive insurance.

Collision would be affected most by drivers blowing stop signs and red lights as well as a lot of drunk and stoned driving.

[Wesley Mouch]

The effects combine. East St. Louis has a lot of crime, but it is not in Michigan. The data on average car insurance costs is inconsistent and I wouldn't put too much stock in the precise numbers, but according to the ranking below, Michigan is #1 at $2551/year while Illinois is #32 at $1370/year. You would have to have a lot of crime to make up that kind of difference. I also don't know what they use for rate-setting criteria in Illinois.

http://www.insure.com/car-insurance/...nce-rates.html

Good link. Clearly Michigan has an insurance problem -- if you consider nearly double Illinois rates a problem.

Go Duggan.

[erikd]

Except that virtually everywhere else in the country auto insurance is mandatory yet companies compete on rates and have large billboards
and TV commercials touting their business and most places have lower rates.

I live in a very urban area of southeast Florida which has a very high rate of auto theft and auto insurance fraud and is infested with ambulance chasing lawyers. I pay about $400 a month to fully insure three cars [[2012, 2012, and 2014) with a high level of liability. PD, low deductible comprehensive and collision, and uninsured motorists. When my insurance is about to renew, my mailbox is flooded with advertising from insurance companies and local agents.

Why do these companies collude only within the city limits of Detroit and compete elsewhere?

I would think that Detroit is not the only place where these insurance issues exist.

For example, large retail chains frequently avoid doing business in cities as a rule, and only break those rules in special circumstances. Detroit is not the only city in America without a Wal-Mart, Kroger, Target, etc.

The suburbs surrounding every American city are filled with these national chains, but they are few and far between inside the actual core cities.

Some of this can be attributed to high crime rates and the other standard excuses, but in many cases the reason is simply that these large companies have a business model that is focused on targeting suburban markets, which has been a proven and profitable model for decades. The standardized metrics that they use to determine "desirable" markets are largely based on things like traffic counts, average household income, and population within a certain radius.

These criteria work well for forecasting retail sales and profitability in a standard suburban area, but they break down when applied to most urban settings. Look at the Kroger store at 21 mile and Card in Macomb Twp as an example... This is a low-medium density suburban residential area, but due to the cul de sac subdivision street plan, all traffic flowing in and out of the surrounding one square mile residential blocks is forced to travel down Card to head north/south, and 21 Mile to head east/west.

Compare that to the similarly sized area of Midtown Detroit between Warren, Mack, the Lodge, and I-75, where the new Whole Foods store is located. The car counts going through the intersection of Mack and John R may not be as high as the car counts at Card and 21 Mile, but the car counts on Woodward, plus Cass, plus John R, certainly add up to be higher than Card alone. When you add in the pedestrian, bike, and bus traffic on Cass, Woodward, and John R, the amount of traffic going past the midtown Whole Foods store is much higher than the traffic going past the Macomb Kroger. Because Kroger uses a prediction model designed for auto-centric suburban areas like 21 and Card, which doesn't properly measure urban traffic patterns, places like midtown Detroit don't seem attractive to the data crunchers in their offices in Ohio.

It's not just the car counts that fail to capture an accurate picture of Detroit and many other urban areas, it is also the economic and population statistics. Wayne State and the DMC attract a large population of students and retirees to midtown, and if you just look at the raw data, the area appears to be very poor. Most college students and retirees do not have high annual incomes, but that doesn't mean that they are poor and lack disposable income. College students spend a shitload of money at local stores, bars, and restaurants, even though their tax returns show very low income. Population data in a university neighborhood can also be very misleading. Most college students don't change their official address to the place where they live and go to school, so population undercounting can really skew these statistics.

I don't think that large companies actively ignore these factors or actively engage in discrimination and collusion, but their analysis models are designed to apply to the majority of America, which is now suburban.

It is not worth their while to come up with a whole new set of criteria and analysis in order to capture the underserved urban population, which is now only about 20% of the entire metro region. This is what leads to a system of de facto discrimination and collusion.

These companies aren't thinking about ways to fuck over Detroit, they simply aren't thinking about Detroit at all.

I generally don't blame these companies, nor do I have a problem with their business model. If they don't want to be in Detroit, that's fine with me.

I don't need Olive Garden, because I go to Ottava Via, Marios, and Roma. I don't need Kroger, because I go to Honeybee, Lafayette Foods, Harbortown, and University. I don't need Bo Rics, because I go to Pete's barber shop or Renaissance Salon. I could go on with a hundred more examples of the same thing.

The lack of national chains in Detroit opens up opportunity for locals to step up and serve the community. I don't consider this to be a bad thing.

The problem with insurance is that it is very capital intensive, and we are legally required to purchase it.

When the national chains refuse to do business in Detroit, Detroiters still have options. We can start our own businesses to fill the void, we can choose not to purchase those products and services, or we can travel outside the city limits to purchase those services and goods. With insurance, we don't have any of those options. By law, we can't just not buy insurance. by law, we can't just go to the suburbs and register our cars there. And unlike most other retail and service operations, we can't just start our own insurance company because of the enormous amount of up front capital required to do so.

[erikd]

Even in a monopoly situation there are "price points" such that you will get maximum return from a given price because if you price it higher, people will do without that particular good or service. In a monopoly situation, you aim for the "sweet spot" because that maximizes your profits. I think Detroit insurance is priced so high because the insurance companies just do not want the business.

I think that is exactly the reason why insurance is so high in Detroit. Not only are we forced to buy their insurance, but they are forced to sell it to us.

Applebees, Kroger, Target, and 99% of the other national chains simply choose to not do business in Detroit at all. It's not because they can't make money in Detroit, but because their business models do not target urban areas in general, and they especially avoid any city or urban area that doesn't feature very high economic activity.

I really believe that the insurance companies redline Detroit because they just don't want to do business here, not because they have to charge outrageous prices just to cover their the cost of doing business in the city.

We see restaurants like Slows, Green Dot, and Bucharest Grill doing gangbuster business in Detroit, but the national chains still have no interest in opening Detroit locations. If we are seeing these local restaurants doing so well that they are opening second locations in the greater downtown area, why do Applebees, TGI Friday's, Olive Garden, and all of their counterparts still refuse to do business in the city? It is clearly not because there isn't enough market demand, or the cost of doing business in the city makes it not profitable.

[sumas]

Actually Detroit just doesn't fit the big chain thinking, because of the river we are kind of a semi circle.

Insurance just spirals. I don't know much but we have never made a personal claim on our home or auto. Excellent driving records. We proudly choose Detroit as our home but do feel we get targeted for ridiculous rates.

Personally we rarely go the the burbs for shopping as most of our needs can be met within city limits. Would be nice though if a home depot could move a bit closer. Older homes do require maintenance.

[Hermod]

When the national chains refuse to do business in Detroit, Detroiters still have options. We can start our own businesses to fill the void, we can choose not to purchase those products and services, or we can travel outside the city limits to purchase those services and goods. With insurance, we don't have any of those options. By law, we can't just not buy insurance. by law, we can't just go to the suburbs and register our cars there. And unlike most other retail and service operations, we can't just start our own insurance company because of the enormous amount of up front capital required to do so.

You start up a mutual insurance company like USAA which started because military officers had trouble getting insurance in towns near military bases.

[jt1]

You start up a mutual insurance company like USAA which started because military officers had trouble getting insurance in towns near military bases.

Or the state can actually require the insurance companies to submit P&L and actuarial data for the city so we can see if they are covering their costs or redlining. But that would require two things [[1) that the state department that covers insurance actually protect consumers and [[2) the state give a shit about city residents.

Since neither [[1) or [[2) will happen in the next 20-30 years then the options have to be towards starting a competitive service

[3d123]

Fanning the flames.

"Car insurance companies charge higher rates if you’re poor, less educated or just plain lazy, two new studies show."