Most Michigan Motorists Can’t Afford Their Auto Insurance, Says Study

April 2, 2019

For many Americans, learning to drive and owning a car are equated with having a sense of independence. But, as researchers recently revealed, Michigan motorists can scarcely afford the skyrocketing costs of car insurance. In other words, their freedom comes at a price.

The average cost of a new vehicle in the U.S. is already around $35,309. That already makes it hard for many Americans to afford their own transportation. But when you add in the costs of maintenance and repairs, fuel, and insurance, it can be downright impossible. Factoring in things like saving up for a home make it even more difficult to fathom. Consider that selling a home for $300,000 requires a commission of almost $18,000 to your realtor.  All that in perspective, skyrocketing car insurance makes financial struggles that much more difficult. That’s certainly the conclusion to which researchers at the University of Michigan came. Drivers in Michigan are spending more on their auto insurance than motorists in any other state. What’s more, data shows that current auto insurance rates in Michigan are not affordable for 97% of the state’s zip codes, meaning that these premiums exceed 2% of a given zip code’s median household income.

In fact, Michigan residents are typically spending far more than that on their auto insurance. Detroit drivers spend anywhere from 12% to 24% of their income on insurance premiums, with some residents in Downtown Detroit spending up to 36% on these insurance payments. That means the average person in Detroit spends over $5,000 a year on car insurance. When you consider that the median household income in this city is only $26,249, that’s a huge burden to bear. In places like Pontiac and Flint, drivers are forced to pay anywhere from 8% to 24% of their median household income on auto insurance. There are only a few areas where auto insurance rates are deemed affordable: Dexter, Birmingham, Bloomfield Hills, DeWitt, Williamston, and parts of Ann Arbor, most of which are considered to be relatively affluent. In the underprivileged areas of the state, car insurance costs are an extreme expenditure that many cannot afford.

Of course, auto insurance provides important benefits, like coverage in the event of an accident. Since there are nearly 6 million car crashes throughout the country every year, the majority of American drivers feel that having auto insurance is essential. But many Michigan residents simply can’t afford to have it — and so many of them don’t. Although there have been ways to work around high insurance rates in the past, famously manufacturers advertised the horsepower of the Shelby Mustang GT 500 as 335. That was a low estimate to appease insurance companies. The actual horsepower was close to 400. Still, 34% of Detroit residents say they don’t own a car (despite the fact that worldwide car sales reached a record 88 million vehicles in 2016), while 20% of drivers throughout Michigan fail to obtain car insurance. Only 13% of drivers opt not to have insurance on a national scale. Unfortunately, researchers say, this only perpetuates poverty in many areas of the state.

The report notes: “Unaffordable insurance may force low-and moderate-income individuals to forgo driving, limiting their ability to get to school, health care appointments, or jobs that are often outside the city limits… Nearly a quarter [of Detroit residents] report having recently missed work or an appointment due to lack of transportation.”

Michigan is one of 12 U.S. states with no-fault insurance, but it’s actually the only state in the union that requires drivers to buy unlimited PIP coverage. On the surface, PIP coverage sounds like a good idea, as it means auto insurers take responsibility for unlimited medical damages. In other words, you’ll be taken care of for life if you’re injured in a car crash. Bankruptcies from unpaid medical bills impacted approximately 2 million people in the U.S. during 2013, so this could seemingly be a way to lessen those medical bills for consumers. But in reality, this is what makes auto insurance costs skyrocket for everyone. Michigan drivers pay fees to the Michigan Catastrophic Claims Association, and those fees are subsequently used to pay for the medical bills of injured drivers. Is it really any surprise that the average cost per accident claim in Michigan topped $75,000 in 2013?

Researchers note that being more conservative with PIP payouts could help, as could replacing the mandatory unlimited PIP coverage with other options and limiting claim time and medical fee schedules. Until the issues of discrimination and poverty are addressed, researchers warn, the situation isn’t likely to improve.

As Tricia Kinley, executive director of the Insurance Alliance of Michigan, explained to a local ABC news affiliate, “It’s a shame Michigan once again has the unfortunate distinction of having the most expensive auto insurance premiums in the country. This report shows that when it comes to car insurance, Michigan is No. 1 for all the wrong reasons.”

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