At $5,000 annually, the fact the drivers in Detroit pay the highest average automobile insurance premiums is unfair, according to an advocacy group.
The group called the Fair and Affordable Insurance Rates (FAIR), has gained the support of Detroit Democrat Sen. Hansen Clarke for a ‘ballot initiative’ to lessen the rate of premiums for Detroit drivers.
However, this action may not reach its idealistic potential, according to
Michelle Minton, insurance studies director Of Washington, D.C.-based Competitive Enterprise Institute.
FAIR aims to lessen business, home and auto premiums by 20% and give an additional 20% cut for drivers with good records. The group also intends to discourage insurance companies from banking too much on location, education, occupation, credit history to establish rates as well as arbitrarily cancelling the coverage of their clients.
Minton said that the initiative, if the proposal is passed, may cause rates to spike even higher than current levels and several companies may transfer operations to other states where they would be less restricted and have more freedom to impose rates based on established risk factors.
She also explained that the proposal actually ignores the ‘fundamental reasons’ why the rates are high to begin with. As seen in Massachusetts and New Jersey, previous attempts to control premium rate determination caused a subsequent exit of insurers to other more relaxed states.
Property insurance rates in Florida have felt the pressure of stricter controls as private insurers are compelled to face competition with a public insurer funded by public taxes. Instead of rates going down, there was an increase in prices. As a result, more residents flooded towards the public insurer and pushed Florida on the brink of bankruptcy. Currently, Florida residents have to contend with higher rates as more and more people are urged to purchase property in the hurricane-prone area. In this scenario, the state has a high propensity of covering up for the risk takers.
This same dilemma may happen in the Michigan auto insurance industry.
Minton urges that it would be wiser for the cost of writing automobile insurance in Michigan to be reduced. This would allow residents to pay fairer rates. One proposal would be to permit both clients and issuers to select the insurance amount that they want to purchase.
Since Michigan is the only US state that compels car owners to buy personal injury insurance inclusive of unlimited medical coverage, the typical claim in the state has increased by as much as 250% since 2000.
Minton said that providing freedom of choice is not going to end all financial woes but it is still better than worsening the deepening chasm of the state’s insurance market.