The firm hired last fall by the City of Detroit to study the feasibility of creating a city-sponsored auto insurance system today released the details of its findings. The analysis outlines the root causes of the premiums Detroit motorists pay – the highest in the nation – and the dramatic savings they would realize under the City’s D-Insurance proposal.
“Detroiters have long suffered extremely high auto insurance premiums, usually twice the rates paid by auto owners in surrounding communities,” said Mayor Mike Duggan. “This independent report shows that the reductions D-Insurance can offer are even larger than we originally expected.”
The Detroit City Charter Section 9-801 provides a process by which the City can address those rates, beginning with a study by a qualified actuarial firm. In November 2014, The Detroit City Council approved the contract for Pinnacle Actuarial Resources; one of the largest independent actuarial firms in North America, to analyze the reason Detroiters are paying higher rates and to assess the feasibility of potential solutions to reduce those rates.
After more than 6 months of analyzing data such as auto injury insurance claims, medical treatment costs and compensation in Detroit and across the country, and data from the Insurance Research Council and other sources, Pinnacle Actuarial today is releasing that report.
The report concludes that the D-Insurance reforms included in Senate Bill 288, approved by the Senate Insurance Committee last week, would lead to major reductions in premiums paid by Detroiters. The estimated savings depends on the premium each driver is currently paying. Examples of savings projected by Pinnacle from SB 288:
Effect on Liability and Medical Only Policies
Approximately 1/3 of Detroiters go without collision or theft insurance, choosing to purchase only the minimum liability coverage required by state law. The effect of D-Insurance on those drivers is even greater.
Pinnacle concluded that the predominant cause of the higher premiums charged to Detroiters was expense associated with medical usage from Detroit policy holders.
Even though Detroit drivers experience auto accidents at the same rate as other Michigan drivers, Pinnacle found that:
- Medical Claims are filed by Detroiters at a rate of 12 per thousand vehicles insured, compared to 6 per thousand in the suburbs.
- Detroiters medical claims are almost twice as expensive: $59,000 per claim in Detroit versus $30,000 per claim in the suburbs.
The report concludes the higher rate of medical claims filed and the higher cost of these claims are the primary cause of the higher premiums paid by Detroiters. In fact Personal Injury Protection (PIP) is the biggest factor in Detroiters’ premiums.
High Deductible Option – Effect on Full Coverage Policies
Pinnacle also analyzed an alternative option in which unlimited medical benefits would be reduced by a deductible amount.
A high deductible option will produce some reduction in premiums for drivers who wish to purchase an unlimited benefits policy.
PDF of the full report
What is D Insurance?
Biography of Roosevelt C. Mosely, Jr. of Pinnacle Actuarial Resources