Gov. Jennifer Granholm unveiled on Monday her comprehensive plan to cut Michigan home and auto insurance rates. With Michigan’s average premiums 12 percent above the national level, and an astounding 32 percent above the Midwest average, low-income Michigan residents are in desperate need of a break. The current business practice of charging insurance premiums based a person’s credit score and the area they live is hindering upward mobility of lower-income individuals. Granholm’s ambitious new plan proposes a 20-percent cut in home and auto premiums and would restrict current insurance business practices that disproportionately affect low-income minorities.
Currently, the state cannot deem local insurance premiums excessive unless it finds a lack of competition in the insurance market. Competition, however, is gauged at the state level instead of a local one, providing an inaccurate evaluation of the insurance industry. Indeed, while many insurance companies operate at the state level, the number that supply to low-income areas is relatively low. To address this, Granholm’s package removes the lack-of-competition restriction, along with other factors known to place upward pressure on premiums. The combination of the legislation’s provisions will allow low-income citizens to obtain and afford insurance.
No legislator has spoken out more often on the issue of discriminatory insurance policies than state Sen. Martha Scott (D-Highland Park), who has been making statements on this issue at each Senate session for more than two years. Many of her statements include e-mails from angry constituents wondering why they are being singled out for higher rates. The answer, all too often, is location. Insurance companies determine local rates, in part, by using the number of claims filed in that city or area; the companies automatically charge more for insurance in high-crime urban areas. Because the “high risk” designation translates into exorbitant premiums or flat-out denial for many seeking coverage, insurance companies are effectively pricing inner-city residents out of insurance. The letters Scott reads represent a growing sentiment: It is no longer worth living in high risk areas. As urban planners struggle to curb urban sprawl, insurance companies are driving families, and money, out of cities.
The flight of its middle class citizens has made Detroit the poorest city in the country. Detroit has attempted numerous revival strategies, but none have taken hold – families with the means to relocate often do. One of the ways to combat Detroit’s decline is to encourage home ownership within the city. When residents transition from renters to owners, they become investors. Because they have a financial stake in an area’s future, they are more likely to maintain and improve it. Unfortunately, because of unusually high home insurance rates, few have an incentive to stay within the city. Those who do remain often cannot afford the rates companies offer. Thus, many of the houses available to low-income residents are in various states of disrepair.
It is essential to view Granholm’s insurance reform as a way to increase upward mobility in Michigan’s decaying urban areas. Current business practices send the wrong signal to people looking to buy residences in urban areas and those who are interested in owning for the first time. While insurance companies are determining people’s futures using profit scales and formulas that keep corporate accounts in the black, the exorbitant rates charged are dragging many others into the red.