Insurance rates are often lower if you live in the suburbs. (Photo courtesy of the USDA)
People who live in the city pay higher insurance rates for cars and homes than people in the suburbs. Often it’s a lot more. The insurance industry says it’s using the fairest method. The GLRC’s Lester Graham reports that method might contribute to urban sprawl:
Transcript
People who live in the city pay higher insurance rates for cars and homes
than people in the suburbs. Often it’s a lot more. The insurance industry
says it’s using the fairest method. The GLRC’s Lester Graham reports
that method might contribute to urban sprawl:
(Sound of car starting)
We’re taking a little drive and Brandi Stoneman is showing me where she used to live.
It’s just two-and-a-half miles from where she works. But… she met a guy… they
dated… they fell in love… and after a while decided to move in together.
His house was bigger. So, Brandi moved from her home near downtown
and out to his house 15 miles out into the suburbs.
When she told her insurance agent… she got a surprise. Her auto
insurance rates dropped… a lot.
“It almost was in half when they—when I told them I’d moved and
changed and it almost dropped in half. Of course I was excited, but it
was amazing. It was a huge difference.”
“Did you ask them why?”
“I did ask them why and they said, of course, that it was the area that I
lived in. It went by the zip code and it didn’t have really have much to do
with the fact that I was farther away from work.”
So, instead of five miles to work and back… she drives 30 miles… to the
same downtown location, but that wasn’t the only surprise. She kept her
old home in town… so, like her boyfriend, she still needed to buy
homeowners insurance.
“And when we both were looking and shopping for insurance rates, I
spent about three-to-four hundred dollars on my premium on a house that
was almost half the price of his, and that was, again, because of where I
lived and the zip code and the area that I live in.”
If you live in the city… this might sound familiar. You probably know a
colleague or friend in the suburbs who’s paying a lot lower insurance
rates. Stoneman lives in Michigan. That state’s Office of Financial and
Insurance Services spokesman, Ken Ross, says it’s typical of insurance
rates across the country.
“Our urban population centers have experienced higher rates for both
home and auto insurance. That is a function of insurance companies
pairing the higher costs associated with living in an urban environment, higher
concentration of people with higher losses and those losses are paired
with rates being filed and ultimately premiums being charged to
consumers who live in those areas.”
And the regulators say that’s a pretty fair way of doing things. The
insurance industry also thinks it’s fair.
Peter Kuhnmuench is with the Insurance Institute of Michigan.
“Largely because of the density of the population, the incidents of
collision, the incidents of theft are much higher in an urban area than
they are out in the outlying suburban areas.”
Kuhnmuench says if people choose to live in the city, they should expect
to pay higher insurance rates. He agrees that the lower rates in the
suburbs might be an incentive to move there.
“Well, I would certainly believe that cost factors for insurance would be
a contributing factor to your decision to move from the city to the
suburbs. Obviously, higher insurance rates reflected in the city could be
one of those contributing factors, I guess, Lester, but overall those rates
pretty much reflect the underlying costs to provide the coverage in those
areas.”
Different state legislatures have considered laws that would make
insurance rates less dependent on where you live, but those kinds of bills
usually don’t even make it to a vote because legislators don’t want to
anger suburban voters by making them subsidize urban insurance costs.
So instead, more people move to the suburbs and ironically, everybody else
subsidizes the cost of new suburban streets, more lanes of highways, and
other infrastructure costs associated with the sprawling suburbs and
accommodating the people who commute to the city.
And while the lower insurance rates encourage a move to the suburbs,
big city mayors say the higher rates in urban areas discourage
redevelopment in the city. Those mayors, urban legislators, and
advocacy groups lobby state legislatures to find an insurance rate
structure that doesn’t penalize those people who choose to live in the city
and reward those who spread out to the suburbs.
For the GLRC, I’m Lester Graham.