Detroit car insurance: Why Cleveland has it way cheaper

CLEVELAND — When Detroiters think of Cleveland, they might snicker about its disparaging old nickname, the Mistake on the Lake.

But make no mistake. Residents of Cleveland enjoy a benefit beyond the NBA Cavaliers' recent championship that doesn't exist in Detroit: Cheap auto insurance.

A Free Press examination found that auto insurance premiums in Cleveland are often thousands of dollars a year lower than the highest-in-the-nation rates that Detroiters pay.

For example:

A former Cleveland City Councilman who drives a BMW and has had multiple drunken-driving convictions pays less than $100 a month.

A new resident pays about $65 per month for a Honda Accord, just slightly more than he did in the suburbs.

A Cleveland couple in their 30s pays about $100 each month for two vehicles.

In Detroit, a sub-$100 monthly auto insurance premium is the stuff of fantasy — even for those with perfect driving records and excellent credit. One state lawmaker with a good driving record, for example, pays more than $400 a month.

Cleveland's low rates persist even as insurers in Ohio use the same non-driving factors when setting premiums that critics say unfairly penalize people in high-poverty cities like Detroit.

Those factors include drivers' home ZIP codes, a version of their credit scores and whether they have four-year college degrees.

Some say this insurance industry practice is especially discriminatory to black people —tantamount to "redlining" areas where they live — and a major reason for Detroit's sky-high rates that can exceed $3,000 a year to insure a single vehicle.

"We’re simply charged for being black in Detroit," state Rep. Sherry Gay-Dagnogo, D-Detroit, said during debate in Lansing last fall on a proposed auto insurance overhaul that was voted down.

But insurance experts say the huge contrast between Detroit's and Cleveland's auto rates isn't because racial or class discrimination by insurance companies is any worse in southeast Michigan than in northeast Ohio.

Instead, it's another example of how Michigan's one-of-a-kind no-fault insurance system, which mandates that all motorists buy coverage for potentially unlimited medical benefits, forces Detroiters to pay so much more than anyone else.

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A Free Press investigation last year found that in Detroit, these no-fault benefits present a lucrative target for profit-seeking medical clinics, lawyers and accident victim solicitors.

These profiteers reel in Detroiters who were in accidents with promises of up-front cash, benefits to friends and relatives to be their attendant-care providers, and hopes of a much larger payout in negligence lawsuits.

In Michigan, "you require everyone to have this generous, well-funded insurance, which costs a lot in part because since it's really generous, people are going to use it a lot," said Paul Heaton, a senior fellow at the University of Pennsylvania Law School who authored a 2010 report on Michigan's no-fault system.

Suburbs vs. city

The Free Press found that Cleveland residents, like Detroiters, are indeed charged more for car insurance than drivers in many nearby suburbs. But the price difference there between city and suburban markets is only about $7 to $30 per month, according to interviews with Cleveland-area drivers and insurance agents.

By comparison, Detroit drivers can see a 50% drop in their insurance rates if they cross city limits and move to suburbs.

The Free Press looked at Cleveland because, although smaller in population than Detroit, it is another major Midwest city in a neighboring state with similar weather and population demographics — Cleveland is Ohio's largest black-majority city.

A reporter found numerous Clevelanders who pay less than $100 per month per vehicle for full liability and collision coverage.

A Catholic priest in his 50s who moved to Cleveland this winter pays the equivalent of $65 a month for his 2010 Honda Accord, only slightly more than what he was charged in a Cleveland suburb about 28 miles away.

"I think it was $50 per year, the change in rates" moving to Cleveland, said the Rev. David Schlegel, who is 56. "I thought it would be much more."

In one of Cleveland's most expensive ZIP codes, full coverage for a 45-year-old man driving a newer vehicle could run about $115 to $120 per month, said Raul Santos, a manager at a Young America Insurance office on Cleveland's west side.

For a younger man of 25, the rate could be about $160 per month, he said.

Some of the cheapest insurance the Free Press found belonged to a Cleveland millennial who said he pays about $200 every six months for just liability coverage on his 2000 Lincoln Town Car. That comes out to just $33 a month.

"I think it's a fair rate," 26-year-old Arthur Kostendt said.

A Cleveland couple in their early 30s snagged a particularly good bargain for full coverage; they pay just $79 a month for two vehicles. (Model years 2011 and 2012.)

Mike Vakos, the agent who sold that policy, said the couple likely had very good credit histories. The cost difference between good credit and bad credit is roughly 30% for a Cleveland auto premium, he said.

Some Detroiters are charged triple that amount or more, including state Rep. Leslie Love, D-Detroit, who drives a 2009 Saturn Aura that is parked in her garage on the city's west side.

She said her annual insurance premium on the car dipped below $4,300 last year, then inexplicably shot back above $5,000 for 2018 — more than $400 per month.

Her annual premium is essentially the car's resale value, according to the Kelley Blue Book website.

"I have a friend in Ohio who just pities me," said Love, who is in her 40s. She is one of the few Democrats who voted in favor of last fall's unsuccessful no-fault overhaul bill.

Few complaints in Cleveland

Residents of urban areas generally pay more for auto insurance than those in less-populated ones because of busier roadways, more frequent crashes and more theft.

But it's the large expense of no-fault benefits on top of general urban factors that makes insurance in Detroit so expensive.

Insurance companies use ZIP codes to contain the costs of claims to the areas where people who generated the claims live, raising premiums for everyone who garages a car there.

"That's why it's more expensive in Detroit, because the people you're grouped with are more likely to have a claim, and that claim has a likelihood of being far higher than in Cleveland," said James Lynch, chief actuary at the New York-based Insurance Information Institute, an industry-funded organization.

Car insurance affordability is not the pressing issue in Cleveland that it is in Detroit, where an estimated 60% of residents drive illegally without insurance, largely because of the high cost.

The Free Press could not find any Clevelanders who thought that their city was being unfairly punished by higher insurance rates.

"They complain about the potholes more than the car insurance," said Clevelander D.J. Johnson, 50, who said he pays about $70 per month to insure his 2015 Toyota Camry.

Asked whether they worried about Ohio's lack of a strong safety net for survivors of bad car crashes, several Cleveland drivers said they hadn't given that idea much thought.

"That's a good question," said Schlegel, the Catholic priest. "I never have (been in a bad accident), so thanks be to God."

Zack Reed, 55, who was on Cleveland City Council from 2001 until late last year, said that car insurance never came up as a big issue during his time in office.

"I was on council for 17 years, and in my 17 years I can tell you that I have not heard one complaint that's ever come to me based on car insurance," Reed said.

Reed's own driving record isn't perfect. He was convicted of his third DUI in 2013. Following that, the cost of insuring his 2008 BMW jumped to $151 a month. Now five years later, his monthly rate is back to double digits.

"I pay less than $100 a month and I live in a neighborhood that people would say is somewhat crime-ridden," Reed said. "My insurance cost is lower than my cable."

No-fault to blame

The Zebra, an insurance comparison website, looked at both cities in its nationwide auto insurance analysis between September and December 2017. The analysis was based on a 30-year-old single male with a good driving history driving a 2013 Honda Accord EX.

It found Cleveland with a $1,277 average annual auto premium for comprehensive coverage. In Detroit, the average was $5,414.

"Detroit is more than three times what Cleveland is, which is truly remarkable when you think of the proximity of the cities and the states," said Alyssa Connolly, the website's communications director.

She noted how insurance rates reflect numerous factors, likely accounting for how Cleveland has a smaller population than Detroit (385,809 versus 627,795 by the latest estimates), as well as less than half as many reported auto thefts and roughly 25% fewer vehicle crashes.

Still, “I don’t think any of those other factors are significant enough to make rates three times what they are in Cleveland," Connolly said. "All signs seem to be pointing to the no-fault coverage laws in Michigan.”

The Ohio Four

A Free Press reporter did learn of Ohioans who pay Detroit-level car insurance rates. Four people, exactly.

That is the number of drivers in Ohio's last-chance auto insurance program for those whose driving records are so atrocious, no commercial insurer will take them.

Yearly premiums for this Ohio Automobile Insurance Plan run about $4,000, said Dean Fadel, the program's manager.

"We've only got four people in the plan," said Fadel, who is also president of the Ohio Insurance Institute, a trade group. "Our last-resort mechanism may be even cheaper than what your regular mechanism is" in Detroit.

Racism the real problem?

During last fall's debate in Lansing on the proposed no-fault overhaul, some lawmakers said they couldn't support the legislation because it still permitted insurance companies to use factors such as ZIP codes and non-driving records in setting rates, a practice they believe is discriminatory.

"They don't want to address the root cause of the problem," state Rep. Fred Durhal III, D-Detroit, told Crain's Detroit on why he voted no.

State Rep. Rose Mary Robinson, D-Detroit, said she also opposed the bill for that reason, among others.

"I just think it's unfair that it was geared to Detroit without resolving the issues of redlining, and all the negative things that historically have been counted against people in Detroit," she said this month.

The centerpiece of the bill would have given all Michigan motorists a first-ever choice in the amount of no-fault coverage that they must buy.

But critics voiced concern that the new options would lure consumers into making irresponsible choices by selecting only the cheapest coverage — and later regretting it after a bad accident.

Also controversial, the bill would have reduced no-fault insurance reimbursement to medical providers by establishing price controls, known as a fee schedule, similar to what exists in Michigan's workers' compensation program, although a bit more lucrative.

Despite support from Detroit's Democratic Mayor Mike Duggan, the bill was ultimately voted down 63-45 in the House of Representatives when most Democrats opposed it.

Insurers deny 'redlining'

There is a history in metro Detroit and across the country of banks, mortgage lenders and real estate agents in the past denying equal services to blacks and those living in predominantly minority areas.

A report last year on auto insurance discrimination and redlining by ProPublica and Consumer Reports found that insurers in four states — not including Michigan — have been charging drivers in minority-majority ZIP codes significantly higher rates than similar drivers in white-majority neighborhoods, despite fewer insurance claims in the minority areas.

The insurance industry contested the report's findings and methodologies.

In Michigan, auto insurers have strongly denied allegations of racism and discrimination concerning Detroit rates.

Studies have found that credit scores are actually good predictors for the number and total cost of insurance claims that drivers may file in the future.

"The effectiveness of these factors that get pointed at have been proved over and over and over again," Lynch said, the Insurance Information Institute actuary.

He noted how many people accept that young drivers will have higher insurance rates, even though age is also a non-driving factor.

A past actuarial study found some justification for the high auto rates in Detroit.

The study, conducted for the City of Detroit by Bloomington, Ill.-based Pinnacle Actuarial Resources and released in 2015 found Detroiters used the medical benefits portion of no-fault, known as personal injury protection, twice as often and for twice the average claim amount as policyholders in the suburbs — $60,000 in Detroit versus $32,000 among suburban drivers.

Competition holds down rates?

During last fall's debate on the no-fault overhaul, several lawmakers cited the legislation's lack of a long-term requirement for lower premiums as one of the reasons they couldn't support it.

The mandated price reduction — 40% off the no-fault benefits portion of some policies — expired after five years. Insurers also weren't compelled to offer the full reduction if it would cause them to lose money.

In Ohio, there is no statutory requirement for auto insurers to keep rates at certain levels.

Fadel, the Ohio Insurance Institute head, said that general competition among insurance companies is what helps to keep Ohio rates some of the nation's lowest.

"I can tell you the companies here fiercely vie for consumers' business. They all know that price is a major — and sometimes only — factor in a consumer's purchasing decision," he said.

Tort vs. no-fault

In Ohio, the auto insurance of the driver who caused a crash pays for victims' medical and vehicle damage bills — but only up to a point. The payout is often determined by the size of the at-fault driver's liability coverage or the victim's own underinsured motorist protection policy.

People who cause a crash generally rely on their own private health insurance for medical bills.

Ohioans can also sue at-fault drivers for damages beyond the coverage limits in an auto insurance policy. At-fault motorists in Ohio are on the hook for what their insurance plan doesn't cover.

But these lawsuits are not guaranteed windfalls because many defendants lack sizable personal assets and judgments can be discharged in bankruptcy, according to several Ohio accident attorneys.

The system is very different in Michigan. Under no-fault, auto insurers pay the lifetime medical bills of insured drivers and the drivers' passengers, regardless of who caused the accident.

No-fault also provides lost wages and in-home chores money and attendant care for basic needs.

The trade-off for these extensive benefits is Michigan's higher legal hurdles for suing negligent drivers. Those lawsuits succeed only if someone was killed or suffered a serious bodily impairment in the crash.

Lower prices, greater risk

Nationwide, 38 states have a tort-based system similar to Ohio's and 12 states use no-fault rules. Nevada, Georgia, Connecticut and Colorado completely dropped no-fault in response to rising costs.

In Michigan, no-fault benefits claims have been rising fast and now far exceed collision payouts.

The average no-fault claim in the state for so-called "personal injury protection" was $56,207 last year, more than double the 2007 average of $25,689, according to insurance industry data from the Independent Statistical Service.

The average Michigan collision claim rose 40% to $3,811 during the same period.

And the bigger the claims, the higher the auto insurance rates for Michigan drivers.

A survey by carinsurance.com put the average Michigan premium at $2,484 a year, the most expensive in the country.

Ohio drivers aren't mandated to buy medical coverage with their car insurance — a money-saver on their premiums. Ohio has some of the lowest auto insurance rates in the nation, averaging $952 a year according to the carinsurance.com survey.

Yet without no-fault-type coverage, Ohioans are at greater risk of financial ruin should they be seriously hurt in an accident and forced to take time off work. For the catastrophically injured, the final stop in Ohio can be a Medicaid-funded nursing home.

"Medicaid, what they provide — you're like a beggar. It's just substandard care," said Ronald Smolarski, owner of Beacon Rehabilitation Services in Ann Arbor who forecasts the future medical costs of severely injured people in several states.

At least one Michigan lawmaker believes that Ohio's lower insurance rates are worth the risk.

Jason Sheppard, R-Temperance, who lives about 1 mile from the state border, recently introduced a package of bills that calls for replacing Michigan's no-fault system with an Ohio-style system to lower statewide rates.

Sheppard said that out of curiosity, he once got an Ohio insurance quote for his family's two vehicles. The Ohio rate was less than half the $4,000-plus annual premium that he currently pays for both.

He said it's common to see Michigan residents who live near Ohio with Ohio license plates — and presumably cheaper Ohio insurance — after having registered their vehicles across the border at family members' addresses. Such a gambit is considered insurance fraud.

So far, Sheppard hasn't heard any anecdotes involving the reverse: Ohioans trying to get Michigan no-fault insurance.

"The question becomes, 'is it that bad in Ohio?' " he said.

Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @JCReindl.

Detroit vs. Cleveland stats

Population:

Detroit had an estimated 627,795 residents in 2016.

Cleveland had 385,809 that year.

Vehicle theft:

Detroit reported 8,771 thefts in 2016, the most recent year available.

Cleveland had 3,563 thefts in 2017.

Crashes:

Detroit had 23,444 crashes in 2016.

Cleveland had 17,876 crashes in 2017.

Race:

Detroiters were 83% black at time of 2010 Census

Clevelanders were 53% black in that Census

Source: Free Press research using municipal, state and U.S. Census Bureau records.