Public Engagement & Impact
Auto insurance rate-setting has been under scrutiny by Michigan legislators, and now Congress is looking into the issue. This week a House subcommittee tapped U-M Poverty Solutions data and policy advisor Joshua Rivera to testify on their recent study on auto insurance.
The U.S. Treasury Department’s Federal Insurance Office deems auto insurance “unaffordable” in areas where premiums exceed 2 percent of a ZIP code’s median household income. Rivera and the Poverty Solutions team found that auto insurance is unaffordable in 97 percent of all Michigan zip codes. Moreover, auto insurance rates affect low-income residents disproportionately.
“With an average annual premium of $5,414, Detroiters face the most expensive car insurance rates in the country,” Rivera told the House Subcommittee on Oversight and Investigations. “To put this in context, the typical Detroit household has an income of $30,000 a year, which means car insurance will eat up 18 percent of their annual pre-tax income.”
Rivera explained that this is because insurance companies use non-driving factors to set rates.
“This includes factors such as gender, educational attainment, home ownership status, and insurance scores derived from credit scores,” he said.
The Poverty Solutions report called on Michigan legislators to curb the use of non-driving factors to set rates, as other states have done.
“While numerous policy levers to reduce auto rates are typically within the purview of the states, Congress has expressed interest in curtailing rate-setting practices at the federal level,” he said.
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