
The Michigan Citizen has been talking about the practice of insurance red-lining in Detroit for a long time. Now the Detroit News cites a report that accuses Michigan auto insurers of making astronomical profits on the backs of the state’s consumers.
A review of financial records from AAA, Allstate and State Farm — which combined provide auto insurance to about 50 percent of Michigan’s insured drivers — found all three of them are making excessive profits.
According to the article, AAA of Michigan’s profits more than doubled to $104.2 million in 2006 from $50.9 million in 2002. The company’s surplus — money set aside to pay future claims — increased by 68 percent during the same period, ballooning to $1.53 billion from $915 million.
The study’s author, Jay Angoff, served as Missouri’s insurance commissioner from 1993-1998. Based on his findings, he believes Michigan should “consider legislation that would prevent auto insurers from charging higher premiums for people who have bad credit, low-status jobs and limited formal education.”
As an example, he said he went online Thursday to make two bogus applications for coverage. The two were identical except he identified himself as a restaurant manager in one application and as a waiter in the other. The insurance company quoted an annual rate of $785.90 for the restaurant manager and $1,002.50 for the waiter.
“All other things being equal, my rate went up by 20 percent because I got demoted from manager to waiter,” he said.
And don’t live in the city of Detroit.
Here’s a look at the rates charged to the same hypothetical person depending on whether he or she lived in Detroit or in Kalamazoo.
Allstate: $1,821 for Kalamazoo resident; $4,394 for Detroiter; a 241 percent difference.
AAA: $1,915 in Kalamazoo; $4,816 in Detroit; a difference of 251 percent.
State Farm: $1,624 in Kalamazoo; $5,933 for a Detroit motorist; a 365 percent difference.
Detroit News - Report: Mich. auto insurers pile up profits, surpluses