Auto Insurance and Economic Mobility in Michigan: A Cycle of Poverty
By Patrick Cooney, Elizabeth Phillips, and Joshua Rivera
Michigan has the most expensive automobile insurance in the United States, with an estimated annual premium of $2,610, almost double the national average. This burden, however, does not fall equally. With an average annual premium of $5,414, Detroiters face the most expensive car insurance rates in the country, and other low-income Michigan communities are subject to extreme rates as well. In turn, a large proportion of Michigan residents drive uninsured, leaving themselves and others open to financial risk, especially in lower-income communities. Altogether, this means that the cost of auto insurance has become a major barrier to mobility from poverty in Detroit and across the state.
This brief discusses the link between economic mobility and transportation, and examines the disproportionate impact of extreme car insurance prices on low-income Michiganders. It explores why coverage is so expensive here, and offers two goals for reform: 1) to reduce the cost of auto insurance across the state, and 2) to narrow the gap between what Michigan’s wealthiest and poorest residents pay. Both goals are critical for the state to end a cycle of poverty that puts Michigan as a whole, and particularly low-income residents, at a competitive disadvantage.
Transportation And Economic Mobility
Transportation is vitally important to economic mobility. Whether to get to a new job, go back to school, or make it to a doctor’s appointment, reliable and affordable transportation can make the difference in moving up the economic ladder. In Detroit, public transportation is under-resourced, and many entry-level job opportunities are located in the surrounding suburbs, which are largely inaccessible by public transportation. Thus, reliable access to transportation in Detroit often means reliable access to a car.
Yet, the price of auto insurance creates a huge barrier to auto- mobile ownership in Michigan, and in Detroit in particular. 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.
This standard can be applied to recent data from The Zebra, a premiere auto insurance comparison marketplace. The Zebra collects rate information from public rate filings and insurance rating platforms. In total, the data provides an average rate per ZIP code for a “base profile” insured driver. This exercise yields car insurance rates that represent more than 2 percent of median household income in 97 percent of all Michigan ZIP codes. In Detroit, average rates represent between 12 and 36 percent of residents’ pre-tax income in nearly every ZIP code. By comparison, the Department of Housing and Urban Development considers housing costs to be unaffordable if they surpass 30 percent of income.
As shown in Figure 1, the vast majority of Michigan communities are also above the 2 percent affordability threshold, yet the burden is substantially greater for low-income communities:
- Royal Oak, Farmington Hills, and Livonia face rates above the affordability threshold, but these range from 2.1 to 4 percent of area median household income.
- In Pontiac and Flint, in contrast, rates vary between 8 and 24 percent of median income.
- Saginaw and Ypsilanti’s rates are 4 to 12 percent of the area’s median household income.
The only affordable ZIP Codes in Michigan are in more affluent communities:
- In Southeast Michigan, Dexter, Birmingham, Bloomfield Hills, and parts of Ann Arbor face affordable rates, in part, due to higher household incomes in those area.
- Williamston and DeWitt, two cities outside of Lansing, meet the affordability threshold.