Atty. General Asks Mich. Insurers to Explain

Attorney General Jennifer Granholm has released the results of a statewide survey her office conducted into the practice of insurance redlining in Michigan. In releasing the results—which showed disparities in auto rates of up to 17 percent in cities with similar population sizes and auto theft rates, but with differing racial make-ups—Granholm said she has asked the insurance providers for an explanation of the rate differences.

“The findings of the study are compelling—and disturbing—to say the least. The time has come for the industry to be more up front with their customers. Consumers pay thousands of dollars a year to keep their homes and cars insured—they deserve to know how their rates are calculated.”

In recent years, redlining has been associated with the practice of tying credit scores to insurance rates. Since redlining based solely on racial factors is illegal, Granholm has asked the insurance companies for an explanation of the rate disparities her study found.

Granholm’s office reviewed 60 auto insurance quotes obtained for six pairs of Michigan cities that were similar in size and auto theft rates, but had different racial compositions. The results showed that in five out of the six city pairs, the same individual in a community with a sizeable African- American population paid a higher rate by an average of 14 percent. The unscientific study compared insurance rates for a 33-year-old single, female home-owner attempting to insure a 2001 Chevy Cavalier in Madison Heights and Inkster; Burton and Oak Park; Sturgis and Albion; Dearborn and Southfield; Taylor and Pontiac; and Melvindale and Benton Harbor. Staff requested on-line insurance quotes from Allstate, GMAC Insurance, Progressive Insurance, Geico, and Esurance.com.

A second study, using the same female and the same auto, compared rates between neighborhoods in the city of Detroit versus its border cities. The follow-up survey demonstrated average disparities of nearly 30 percent between rates based on addresses as close as a few blocks away. In one instance, the six-month premium to insure the Cavalier at a Detroit address on Jefferson was $5,000, more than 67 percent higher than the premium to insure the same automobile at a Jefferson address just a few blocks away in Grosse Pointe Park.

Granholm began the study—and a general review of discrimination in the financial industry—earlier this year after her Consumer Protection Division received a number of consumer complaints regarding potential insurance redlining and the use of credit scores in insurance rate setting. Recent court decisions and changes in Michigan law, however, have stripped the Attorney General’s office of its ability to use the Michigan Consumer Protection Act to challenge potentially unfair business practices in the insurance industry. Granholm forwarded the study results—and complaints received by her office—to Michigan Insurance Commissioner Frank Fitzgerald for his review and analysis earlier this month.

Granholm asked Fitzgerald to join her in encouraging the insurance companies to interject more transparency into their rate-setting and suggested that the two work together to explore the practice of using credit scores to set insurance rates.

“The lack of transparency within the industry will continue to erode public confidence and increase public skepticism concerning industry underwriting and rate-setting practices. I look forward to working with you on these issues,” Granholm commented, in a letter to Fitzgerald.

Topics Carriers Auto Michigan