Myth busting: Detroit auto insurance rates and auto theft

Let's face it: Detroit's auto insurance rates are astronomical!

They are the highest of any big city in the nation by a large margin. Michigan's auto insurance rates are near the top ten in the nation. So, you might think that when auto theft numbers continue to drop like a stone that beleaguered Michigan drivers, who are already dodging potholes as if in a demolition derby and spending hundreds more than other drivers in other parts of the country, might get a break on their insurance rates. And you would be wrong!

Even though, according to the National Insurance Crime Bureau, Michigan's auto theft rate is more than three times lower than what it was thirty years ago, your auto insurance bills will likely continue going up. It turns out auto theft accounts for about 2 percent of your insurance premium and since it is a voluntary coverage not that many Michiganders even bother to pay for the protection.

View data: Auto Thefts in Michigan since 1960
Press release: A Historical Analysis of Vehicle Theft in Michigan 1960-2013

So what is going on? Why is making an auto insurance payment in Michigan, especially in Detroit sometimes multiples of your monthly vehicle payment?

When you ask the insurance industry's experts they will tell you Michigan is the only state in the nation with mandatory lifetime healthcare coverage.

This is a quote right out of the Insurance Institute of Michigan's website: "People injured in Michigan auto crashes receive unlimited medical benefits for their lifetime. No other state comes close to such high benefits. In most other states, injured parties must filed [sic] lawsuits to obtain medical benefits."

The Institute also cites inflation in healthcare costs and auto repair as reasons we pay such high premiums. This is the answer we have received for years when asking the question and makes some sense when you consider the exploding cost of lifetime medical benefits.

But in Detroit, where much of the citizenry lives in poverty and roughly 60 percent of residents don't even bother to buy insurance or claim addresses outside the city, [coming from the mayor's office] there is anger and frustration. Promising a plan to deal with the problem helped Mike Duggan get elected mayor. He has already been successful in having the city council pay for an actuarial study to examine what is truly behind the city's staggering insurance rates. By doing this the city can at least get a feel for whether the rates Detroiters are charged are remotely reasonable. It will also enable the city to know whether it has a prayer of being able to back its own auto insurance company.

That's the idea Duggan is following, but whether it is truly possible is an unknown right now, especially after the city just emerged from the nation's largest ever municipal bankruptcy. It's certainly worth exploring, the results of the exercise will be fascinating. If the city can indeed self-insure its residents saving lots of money it would certainly be a welcome change.

It could also help speed up the city's redevelopment considering a lot of young college grads considering moving into the city are likely blanching at paying auto insurance premiums three or four times what they are used to paying right now.

It is certainly good news auto thieves are becoming less and less successful in Michigan. Sadly though, the numbers don't bear that out in the city of Detroit.

None of it matters, though, in getting insurance rates down. The myth is busted but offers little long term help to Michigan, and in particular Detroit drivers.

More: Auto Insurance Facts

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