Mike Duggan is attacking the right problem in trying to find ways to drive down Detroit’s punishing automobile insurance rates. The high cost of policies is a detriment to living in the city, and are out of reach of many Detroit motorists. But the solution he’s considering is the wrong one.
Mayor-elect Duggan says he is exploring a municipal auto insurance company to allow Detroit to sell policies to its residents. He says he has a private entity in mind to run the business, but hasn’t disclosed who that is, or any other details of the plan.
Detroit’s new charter does include a provision that would allow the city to start an insurance company. But that doesn’t make founding one a good idea.
Insurance is a complex business, and one the city is ill-equipped to sustain. Initial capitalization alone would likely cost $10 million, says Peter Kuhnmuench, executive director of the Insurance Institute of Michigan, an industry group.
Insurance companies are also required to maintain a reserve fund to cover claims, an amount that could total tens of millions of dollars more, depending on how many motorists sign up. Michigan is the only state in the nation that pays unlimited lifetime medical benefits for auto accident injuries, which drives up both premium costs and the amount companies must keep in reserve.
There’s no reason to believe a city-owned insurance provider could offer cheaper rates. Urban areas are inherently more expensive to insure, and conditions in Detroit make coverage particularly costly.
Wayne County accounts for 67 percent of all auto thefts in the state, with the majority of those occurring within the city limits. The cost of medical care is higher in the city. And there are also more auto break-ins. And an estimated half of drivers in Detroit do not carry insurance, another factor driving up costs.
If Duggan believes he can lower premiums by taking the profit out of insurance, he’s in for an awakening. There is no profit in auto insurance, Kuhnmuench says. Michigan auto insurance companies ranked dead last in the nation in return on assets between 2001 and 2011. The average policy sold at a loss. Auto insurers typically make their money selling property and other insurance to their motorist clients. ...
The new mayor should concentrate his efforts on areas where the city can be effective.
First would be aggressively attacking auto thefts. Preventing stolen cars by targeting both the thieves and the chop shops that buy their wares would help lower insurance costs. So would better maintaining traffic and street lights to reduce accidents and break-ins.
The city should be lobbying the Legislature to pass no-fault reform capping the unlimited lifetime medical benefits at an amount comparable to other states. ...
The Detroit News