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Bill would stop auto insurers from using ZIP codes to set rates

May 3, 2017

If you’re a driver in Michigan, it's not exactly breaking news to hear that our auto insurance rates are some of the highest in the country. Drivers in Detroit pay the most. One study estimated an average of $3,400 annually. By comparison, the national average is about $900.

State Sen. Morris Hood III, who's also the minority floor leader in the Senate, introduced a bill that would only allow insurers to base their rates on anticipated repair costs, civil infraction history and insurance claims history. Right now companies can use other factors, including your zip code and how long you’ve been driving.

Michigan Radio's "Morning Edition" host Doug Tribou spoke with Hood about how the bill could impact Michigan drivers.

Doug Tribou: Walk us through this bill, Senator. What would in change about auto insurance in Michigan?

Sen. Morris Hood III: Well, just like you said, looking at the different factors that are being used: their income level, whether or not they graduated from high school or have a college degree, their credit history. Those are the things that are being used now and we’re just trying to make the way that it’s calculated fair across the board.

DT: Michigan is one of about a dozen states with no-fault insurance. Here in Michigan we also have lifetime coverage for catastrophic accidents. While many Michiganders favor those things, both of them are also seen as contributing to the high insurance rates here. Would your goal be to eliminate those?

MH: No, the goal is not to eliminate those because those are really not the factors that are driving up the cost of your premium. The insurance companies indicate risk factors. We’re saying that if you don’t have a bad claims history, if you don’t have a bad driving record then that says that you’re not a high risk.

DT: We mentioned that Senate Bill 312 would limit what insurance companies can consider when choosing your auto rates, but at some level theft is going to play a part in auto rates. In urban areas, not just Detroit, but around the country, that’s more likely to be a problem than say a rural area in the U.P. or in Northern Michigan. How do you level the playing field without penalizing people who live in an area where one factor isn’t at play, where car thefts are really rare?

MH: That’s exactly what we’re going after. In urban areas, if I don’t have a claims history I must be doing something right. I must be making sure that my car is locked. I must be having an alarm on my car. I must be parking in well-lit areas, or possibly garaging my car every night. So, if I’m doing something right, that means that I’m less of a risk, so my insurance premiums should be reflected in that.  

DT: Do you have any concerns that Michiganders in areas outside of Detroit could see their rates increase significantly because of the bill?

MH: Well, we've heard from some of the insurance lobby that to lower rates in urban areas it will raise rates in rural areas, and my question to that is, why? Is that because they have to keep their profit level at the same level? If the rates have to be fair across the board, then it shouldn't be tit for tat. In actuality, we're trying to lower rates across the state as a whole.

DT: Senator Hood, there’s been national research that shows minority communities are charged more for car insurance even when the usual risk factors are the same as they are in predominantly white communities. The issue of red-lining is not a new one and it’s not exclusive to auto insurance. Would it take more than this bill to address that issue when it comes to insurance?

MH: I don’t think so. I think that this bill would accomplish what we’re looking for. It will eliminate will one area being charged a certain rate, and another one being charged another rate. It would just be based on that individual, not an area.

DT: Detroit Mayor Mike Duggan and House Speaker Tom Leonard are also working on legislation that they say would lower costs statewide. Duggan previously supported a bill known as “D-Insurance” that would’ve lowered insurance costs for Detroit residents specifically. Now he says he will not push for a Detroit specific law. Would you be willing to work with them on their legislation?

MH: Definitely. We’re open to working with anyone and everyone to accomplish this goal and if that’s a merger of the bills, most definitely, we’re ready and willing to do that. 

Sen. Morris Hood III represents Michigan's 3rd district, which includes Detroit, Dearborn, and Melvindale.