Ruling by Michigan’s Insurance Commissioner leaves in place Progressive Insurance’s policy of using ZIP codes to set driver insurance premiums
Here’s one more thing you should do when considering a move to a new location: check with your auto No-Fault insurance company before moving.
Well, calling to see if you will be paying a lot more for car insurance probably isn’t at the top of most people’s list when they are considering a move.
But after a recent case, Armstead v. Progressive Michigan Insurance Company, maybe it should be.
Michigan’s Insurance Commissioner recently ruled in Armstead that it was OK for Progressive Michigan Insurance Company to increase the auto insurance rates for Sandra Armstead — who was indisputably a “safe driver” — just “because she moved her vehicle’s garage location from Royal Oak … to Rochester Hills,” i.e., less than 20 miles from ZIP code 48073 to ZIP code 48037.
Notably, the findings of fact in the Armstead ruling included:
- In the rates Progressive filed with the Department of Insurance and Financial Services (DIFS), the insurer identified as a rating factor (without objection from DIFS) its “loss history” (including “frequency of insurance claims per policy holder,” “average cost per claim” and “total loss costs per dollar of premium”) for Ms. Armstead’s previous and current ZIP codes.
- Progressive’s “loss history in a ZIP code area is used to predict the likelihood of future insurance loss and to determine the premium for all vehicles garaged in that ZIP code.”
- Armstead’s “insurance premium increased due to her move” and Progressive’s “loss history” for the new ZIP code: It “did not increase due to any accident” that Ms. Armstead “may have been involved in.”
Given the sorry state of Michigan law on the issue of credit scoring and red-lining — which I discuss further below — the Armstead ruling is a disappointing reminder for consumers and auto insurance attorneys of how much more money drivers who live in the wrong ZIP code will have to pay for Michigan for No-Fault insurance — all because of insurance company practices already outlawed in many other states.
Why the Detroit Alliance for Fair Auto Insurance is right to stop redlining in Detroit
The mission of the recently created Detroit Alliance for Fair Auto Insurance is to lower car insurance prices for Detroit drivers and one of the Alliance’s strategies for accomplishing its mission is to “[s]top redlining in Detroit.”
Sadly, the Armstead ruling sounds consistent with a 2015 Bankrate study showing that a person could pay as much as 64% more for car insurance based on going from one ZIP code to another — even though the distance traveled is only “[t]hree-tenths of a mile — or a five-minute walk from house to house.”
Significantly, the Bankrate study prompted the Consumer Federation of America to “call upon insurance commissioners and the Federal Insurance Office to investigate insurance companies’ use of ZIP codes”:
“[C]onsumer protection laws should be enacted that ensure auto insurance rates are based primarily on a driver’s safety record and annual mileage and that ZIP codes should not have so much weight that results such as those found by Bankrate can occur.”
ZIP code’s ‘loss history’ counts more than person’s driving record
In Armstead, Ms. Armstead — now of Rochester Hills — “testified that she is a safe driver” and Progressive “d[id] not dispute that [she] is a safe driver.”
To illustrate how irrelevant and insignificant her “safe” driving was, Progressive’s Product Manager made the point that “garaging her vehicle in Rochester Hills was the sole factor that caused her rate to increase” — a point that built upon the “fact” that “loss history in a ZIP code area is used to predict the likelihood of future insurance loss and to determine the premium for all vehicles garaged in that ZIP code.”
How ZIP codes — and the city a driver lives in — can spike car insurance prices
Under Michigan’s Insurance Code, “[i]n developing and evaluating [car insurance] rates, … due consideration shall be given to past and prospective loss experience within and outside this state …” (MCL 500.2110(1))
Additionally, “territorial base rates [can be] used by an insurer in this state” in setting “automobile insurance” prices. (MCL 500.2111(1))
Specifically, the Insurance Code says that “automobile insurance risks may be grouped by territory.” (MCL 500.2111(5))
In its “Consumer’s Guide to No-Fault Automobile Insurance in Michigan,” the Department of Insurance and Financial Services (DIFS) explains that one of the factors that determines a Michigan driver’s car insurance rate is “Where You Live”:
“Insurance costs are partially based on where you live. Insurance companies have found that more accidents are likely to occur in some parts of the state than others, and it costs more to settle claims in some places.”