Thereâ€™s no question that car insurance is way, way, WAY too high for drivers in Metro Detroit. But thereâ€™s plenty of disagreement over how to solve the problem. Mayor Mike Duggan is now barreling back into the debate like the proverbial bull in the china shop, with a proposal that he says can fix Detroit auto insurance. HeÂ filed a landmark federal suit last weekÂ to challenge the entire insurance system after his past reform attempt failed. Could it work? It just might, says one legal expert, but like most things in Detroit, it’s not that simple.
AUTO INSURANCE CRASH COURSE
About a dozen states have no-fault auto insurance, meaning your insurer covers your costs no matter who is at fault in an accident. What sets Michigan apart — and makes its premiums the highest in the country — is the limitless personal injury protection benefits, meaning thereâ€™s no cap on medical costs. When youâ€™re in a catastrophic accident, advocates say, PIP protects you from the financial ruin that can come from extensive hospital bills. Critics argue that we have a broken system where health care providers take advantage to charge exorbitant rates, saddling drivers with high costs when they should have the choice to pay less for less coverage. You can bet that insurance companies are in favor of changes that mean theyâ€™d have to pay less, too.
NO-FAULT INSURANCE BY THE NUMBERS
$6,197: The average cost of car insurance in Detroit, and the highest in the country. Via Dugganâ€™s lawsuit.
$1,674: The average cost of car insurance in Cleveland, which has a tort system instead of no fault. (Dugganâ€™s lawsuit)
23,087: Number of tickets issued last year by Detroit police to motorists for driving without auto insurance. (Dugganâ€™s lawsuit)
20.3Â percent: Portion of drivers statewide who are uninsured, the fourth highest in the country. Some estimates put Detroitâ€™s rate around 50 percent. (Insurance Research Council)
44Â percent: Portion of Detroit premium costs that go to personal injury protection. (Free Press)
MAYORÂ DUGGAN DIDNâ€™T COME TO PLAYÂ
Dugganâ€™s complaint — filed in federal court Thursday — goes after state officialÂ Patrick McPharlin, director of the Michigan Department of Insurance and Financial Services, and makes a bold claim: auto insurance rates are so high, and so unfair, that theyâ€™re unconstitutional.
The suit alleges that the current system is unconstitutional because of a previous ruling that required the state to ensure â€œthat coverage is available at fair and equitable ratesâ€ for everyone.
It calls for a judge to require the Legislature to repair the insurance system within six months. And if they donâ€™t, the no fault would be dead and the state would go back to the tort system, where the party at fault pays. (Consumer advocates have plenty of concerns about the tort system too.)
The lawsuit takes aim at the medical industry and health care providers for charging â€œexorbitant fees for medical procedures and services normally priced at a fraction of No-Fault rates.â€ It also blames attorneys who pursue excessive payouts for minor accidents.
A Free Press investigation last year detailed how health care providersjack up rates for auto-related medical bills, like charging five times as much for MRIs.
Duggan previously pitched a reform proposal that would allow some drivers to elect to have less personal injury coverage for lower prices (though the cap would still be higher than in most states). Despite aggressive lobbying, the state Legislature rejected the plan, and some Detroit lawmakers derided it as second-class insurance for low-income residents.
Not everyone likes the lawsuit approach either, even among people sounding the alarm on Detroitâ€™s high insurance rates. State Rep.Sherry Gay-DagnogoÂ told Crainâ€™s thatÂ Duggan is trying to â€œcircumventâ€ the Legislature.
“If nothing else, he’s like a pit bull â€” and you can quote me on that,” she told the news outlet.
CAN DUGGAN MAKE THE CASE?
Dugganâ€™s lawsuit has some strong strategy behind it — he dropped it like a ton of bricks just as election season ramps up, ensuring that insurance reform will remain a critical campaign issue. Heâ€™s going through the courts instead of returning to lawmakers, who are wary ofÂ reform on both sides of the aisle. And while no oneâ€™s tried anything like it, the legal reasoning is sound, saidÂ Steven Gursten, an auto accident attorney who often represents Detroiters. Gursten told Detour the no fault law was ripe for a challenge, and it seemed like someone in Dugganâ€™s office wised up.
â€œYou ask any Michigan lawyer who does no-fault, up until Thursday they would have told you they thought the court gave no-fault the green light,â€ Gursten said. â€œThey were wrong.â€
While this lawsuit could end up resulting in lower insurance premiums, there could be better ways to solve the problem — ones that hits insurance companiesâ€™ balance sheets without reducing medical coverage for accident victims.
GETTING TO THE ROOT OF THE PROBLEMÂ
Gursten said there areÂ some obvious things Michigan could do, proven effective in other states, that would result in major savings for drivers — like introducing common sense regulations limiting insurance companiesâ€™ profit margins. There could also be more oversight to catch fraud and limits to how much health providers can charge for certain services.
But the thing missing from Dugganâ€™s lawsuit that Gursten says could make Detroitersâ€™ insurance premiums plummet overnight? Insurance companies are allowed to use a driverâ€™s zip code andÂ credit scoreÂ to determine her rate — Â a version ofÂ redliningÂ thatâ€™s alive and well, 50 years after the Civil Rights Act.
â€œMichigan allows, basically, legalized discrimination,â€ Gursten said. â€œA driver with the exact same driving history can be charged more just because theyâ€™re black or brown and live in a different zip code. You can be charged $5,000 more a year, and thatâ€™s insane, and itâ€™s especially hurting people in Detroit.â€
In fact, rural insurance costs in Michigan are more reasonable and pretty comparable to national rates.
TOO HOT TO TOUCH
The redlining issue is part of why some politicians on the left, including Gay-Dagnogo, opposed legislation that would have given their constituents lower rates.. So why doesnâ€™t Duggan address it? He could have asked the court to look at the problem, but his lawsuit only makes a brief allusion to the varying costs by zip codes.
Instead, he keeps the legislation palatable to insurance companies, putting no blame on them for profiting off of unfairly higher rates for some residents. After all, insurance companies are bankrolling legislators who could make reform happen — better to stay on their good side, it seems.
To Gursten, Dugganâ€™s avoidance of the redlining issue looks like â€œa little bit of political cowardice, a little bit of expediency on the Mayorâ€™s part.â€
â€œHe wants to get something done â€¦ and therefore heâ€™s willing to look the other way and then allow constituents to continue to get hammered.â€