Why It’s So Hard to Get Cheap Car Insurance in Detroit

Auto Insurance, Insurance
Why It's So Hard to Find Cheap Car Insurance in Detroit

Looking for cheap car insurance in Detroit? You’re in for a tough ride.

Detroit’s average annual car insurance premium of $10,723 is the most expensive among large U.S. cities, according to a 2014 NerdWallet study. That’s more than double the average of the second-most-expensive city, New Orleans, and more than 10 times the average of Winston-Salem, North Carolina, which has the lowest average rates, the study found. 

Unfortunately for Detroit residents, where you live greatly affects how much you pay for car insurance. High crime rates, heavy traffic volume, a large number of uninsured motorists, Michigan’s no-fault insurance system and insurance fraud are all factors contributing to Detroit’s sky-high car insurance premiums.

Auto thefts and crime

There’s a reason some have nicknamed Detroit “carjack city.” Detroit had 11,893 motor vehicle thefts in 2013, or 1,699 per 100,000 residents, according to the Federal Bureau of Investigation, far higher than the national average of 221 per 100,000.

Detroit is one of the most dangerous cities in America, with a violent crime rate of 2,137 per 100,000 residents, five times the national average, according to Forbes. The city has a property crime rate of 59.58 per 1,000 residents, compared with Michigan’s rate of 23.28 and the national median of 27.3, according to data at Neighborhood Scout.

Higher rates of auto theft and property crime mean higher insurance rates, since motorists make claims to recover the costs of a stolen or damaged vehicle and the insurance company has to pay out the claims.

Densely populated neighborhoods

Traffic volume is another reason insurance premiums are higher in Detroit than in the rest of Michigan. A densely populated area with more cars generally puts motorists at a greater risk of getting into an accident.

No-fault insurance

Michigan’s no-fault insurance law became effective in 1973. It requires motorists to carry no-fault auto insurance, which in Michigan provides unlimited lifetime medical benefits for motorists suffering auto injuries and up to $5,392 per month in wage loss benefits for up to three years, regardless of who’s at fault in an accident. This means your premium rates can go up after an accident, even if you weren’t at fault.

Critics of no-fault insurance argue it has led to higher insurance premiums because of generous accident benefits and say it encourages risky and fraudulent behavior, according to the Insurance Information Institute, an industry trade group. Fraud appears to be an issue in Detroit. The city, with about 7% of the state’s population, accounted for one-third of “questionable” insurance claims submitted for review to the National Insurance Crime Bureau in 2012, the most recent year reported.

How to lower your premiums

The Detroit City Council has approved funding to study whether it would be feasible for the city to create its own auto insurance program, which could provide more affordable rates for city residents, according to Crain’s Detroit Business. It’s a bold idea that has been met with mixed reactions, and if it’s approved, it could be years before it’s implemented.

If you live in Detroit or face high car insurance premiums for any other reasons, here are three steps you can take now to reduce your costs:

  1. Shop around. A 2013 NerdWallet study found that American drivers on average are overpaying $368 per year for car insurance because they’re not comparing quotes. Using NerdWallet’s auto insurance comparison tool makes it easy to get a quick estimate online.
  1. Get the discounts you deserve. Many insurance providers offer drivers a variety of discounts, such as reduced premiums for completing a defensive driving course, student discounts for good grades, safe-driving-record discounts, military discounts and discounts for cars with certain safety features. Ask your insurance carrier about these potential deals. If they don’t offer any of these discounts, it might be time to switch providers.
  1. Check your credit score. A higher credit score can mean cheaper car insurance premiums, so focus on paying your bills on time and paying down any debts. Check out your credit reports to see whether mistakes or errors might be hurting your score. You can get your credit report for free from one or all of the national-credit reporting companies at AnnualCreditReport.com.

Image via iStock.