Crime doesn’t explain why Detroit’s auto insurance rates are so high

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Car insurance costs in Detroit, at an average of $5,300 a year, are too expensive for many in the city to afford, and the question is why.

Auto theft and break-ins are certainly higher in Detroit than in much of the state, but crime alone does not explain the city’s dubious honor of having higher insurance rates than any other big city in the country .

A nearly year-long investigation with The Markup into the high cost of auto insurance in Detroit made clear how heavily insurers rely on location to set rates, and how Black Michiganders are saddled with the most expensive policies. This is despite a 2019 state law that banned companies from using ZIP codes to set rates, in an attempt to fix this disparity.

Insurers have said that differences in crime between areas is one of the things that justify the variations in their rates. Erin McDonough, executive director of the Insurance Alliance of Michigan, recently told the Detroit Free Press , “Where your car lives is important. Densely populated areas have more thefts and crashes and vandalism, and you also see medical and litigation costs higher.”

Readers questioned whether car break-ins and thefts explained the big difference in rates between locations, particularly in Detroit. Reporters at The Markup revisited the analysis to find out.

Read more from the series

• Michigan’s ‘fair and reasonable’ reforms allowed car insurers to charge more in Black neighborhoods
• How to get a discount on your car insurance
• How we investigated car insurance loopholes in Michigan
• Why stopping algorithmic inequality requires taking race Into account

The original investigation answered the question of whether population density drove rate differences between Black customers and white customers. Insurance rates were generally more expensive in more densely populated areas. But even within those areas, Black customers were asked to pay significantly more based on their addresses.

For example, white residents outnumbered Black residents by almost 2-to-1 in Auto Club’s most densely populated territories. But almost twice as many Black residents were asked to pay the most expensive rates in those territories. (Auto Club insures AAA members in Michigan.)

To find out whether the racial disparity in pricing in the most densely populated areas was driven by crime, we compared different coverage plans.

The part of an insurance policy that covers things like theft or break-ins is called comprehensive coverage. Payouts from other coverage categories, including car rental and roadside assistance, may also be triggered by a property crime. Customers can expect these types of coverage to cost more in higher-crime areas.

But if crime was the factor causing these location-based price differences, and particularly the upcharge in areas with more Black residents, excluding crime-related coverage should have eliminated those disparities.

Yet, for four of the five insurers we analyzed, removing crime-related coverage had little to no effect on our original findings of how unequal location effects fall along racial lines across the state.

We analyzed insurance rates across locations for five of Michigan’s biggest insurers: Allstate, Auto Club, Citizens, Liberty Mutual and State Farm.

Liberty Mutual was the only insurer where removing property crime-related coverage had a meaningful effect. When those coverage types were excluded, more customers, both Black and white, faced higher rates based on where they lived.

Insurance is a complex industry. State regulators have reminded us it’s important and required by law that insurers price their policies carefully to make sure they have enough money to stay afloat and can pay out claims policyholders depend on. But because the pricing is so complicated, customers are being asked to trust that the insurance industry and regulators are setting fair prices. This is particularly true for Black customers, who are asked to pay more based on where they live.

In our investigation, we did not have enough information to examine whether lawsuits and medical costs drove up the price of insurance in certain areas. But our analysis shows that although insurers cite crime to defend high rates for Detroiters, they need to do a better job of proving it drives the difference.

Crime doesn’t explain why Detroit’s auto insurance rates are so high · Outlier Media