Lowering the Costs of Detroit Auto Insurance

Detroit Skyline at NightYou already pay the city to collect your trash and keep water flowing. What if you got your car insurance from city government too? That’s the new plan that’s being floated in Detroit, Michigan, where in 2014 Mayor Mike Duggan proposed launching city-sponsored car insurance. How would this Detroit auto insurance plan work, and why is it needed?

Why Detroit Auto Insurance Is So Expensive

Detroit has plenty of problems, including a sinking population, huge debt and high crime. Here’s another to add to the list: unaffordable car insurance. Detroit newcomers are shocked to discover that their car insurance premiums skyrocket once they move inside the city limits. The Free Press interviewed one couple that got a quote for $500 per month to insure their late-’90s Camry, when they had been paying $180 per month in Toronto. The average driver in Detroit pays $5,941 per year for car insurance, according to HowStuffWorks. The mayor’s own insurance premiums doubled to $6,000 per year when he moved to Detroit from the city of Livonia.

Why is Detroit auto insurance so expensive? There are a few different reasons. One is Michigan’s insurance laws. Michigan has a no-fault system intended to discourage lawsuits and make sure people injured in car accidents are adequately and quickly compensated. If you’re hurt in an accident in Michigan, you don’t have to file a lawsuit. You automatically receive unlimited medical benefits — for your lifetime — as well as wage loss benefits up to a maximum of $5,189 per month for three years. “No other state comes close to such high benefits,” the Insurance Institute of Michigan says.

Such generous benefits come at a price, of course. They’re funded by charging car insurance policyholders higher rates. Although Michigan operates a special fund to reimburse insurance companies for medical claims exceeding $530,000, it charges policyholders extra to pay for this program.

Detroit auto insurance premiums are even higher than those elsewhere in Michigan because of two main factors, according to the Free Press: high rates of car theft and fraud. Detroit is also one of the nation’s poorest cities, making it extremely difficult for residents to afford insurance. Because car insurance is so expensive, an estimated 60 percent of Detroit drivers are uninsured. The law says that if an uninsured driver is hurt in an accident, he or she is not allowed to seek compensation from the other driver, even if that person was at fault.

D-Insurance: A New Option for Detroit Auto Insurance

In short, the Detroit auto insurance situation is a mess. Enter Mayor Duggan, who in early 2014 proposed a novel idea: a city-sponsored insurance company. Tentatively called “D-Insurance,” the company would effectively subsidize auto insurance premiums for city residents. The city hired a consultant to find out if the program is workable, as well as identify all the factors that make Detroit auto insurance so expensive.

Creating city-sponsored car insurance is a complex proposition. To sell policies, D-Insurance would have to have $7.5 million set aside to cover future claims. The city could instead serve as a broker to negotiate lower rates for city residents. The D-Insurance study should be complete by the summer of 2015.

The state legislature is trying its own approach to lowering Detroit auto insurance costs. One proposal was a no-fault auto insurance reform package that limits medical claims and includes a pilot program allowing low-income motorists to buy $50,000 in personal injury protection. The goal is lowering insurance costs to around $50 per month for low-income drivers.

Are you looking for affordable Detroit auto insurance? Don’t wait for the city to produce a plan — compare rates with free quotes from Compare.com.

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