Insurers use something called the "territorial rating system" to determine high-risk zip codes. Essentially, the more urban the zip code, the higher the risk and the higher the rates, according to The Guardian. If a zip code is considered high-risk than insurance premiums go up. A lot.
Drivers in urban areas can pay as much as $400 more per year than their suburban counterparts, and sometimes even more than that. Drivers in Detroit, for instance, pay the highest insurance rates in the country: $4,599 per year on average. Their neighbors only a few miles north in the suburb of Royal Oak, Michigan pay less than half that rate, according to the Noisy Neighbor tool at carinsurance.com.
While the cities' congested roads do increase the likelihood of a crash and the greater chance of crime in urban areas increases insurers' risk, research by UCLA sociologists Michael Stoll and Paul Ong shows the increase in insurance premiums for urban drivers is higher than those costs. That means those poorer city dwellers who can ill-afford additional bills are getting hit with much higher rates than they should. That higher cost leads to more drivers lying about where they live, or, like 19 percent of Detroiters, driving uninsured.
Since almost every state requires car insurance and ninety percent of American households own cars, there is little incentive for insurers to change their practices or make billing more transparent. For now, all we know is that some people are paying more than what seems to be necessary.