It is no secret insurers have been known to charge higher premiums to drivers living in predominantly minority urban neighborhoods than drivers with similar records who live in majority-white neighborhoods. Insurance companies have defended this practice by arguing the risk of accidents is greater in those neighborhoods. That argument, however, may not hold water. A joint investigation by Consumer Reports and ProPublica found that consumers in some minority neighborhoods are charged as much as 30% more for car insurance than those in other neighborhoods with similar accident-related costs. The analysis examined information from four states and found that discrepancies in premium prices between these neighborhoods cannot be explained by differences in risk.
Most states have passed laws making discriminatory rate setting illegal, and companies maintain they use nondiscriminatory rating factors. Still, it is unclear why minority neighborhoods are treated differently than similarly risky white neighborhoods. For example, in looking at two similarly-situated drivers, both of whom receive a good-driver discount and have similar policies from Geico, the investigation found that the man living in a minority neighborhood paid a $190.69 premium for his 2012 Honda Civic, while a man in the more affluent neighborhood paid a $54.67 premium for his 2015 Audi Q5. Worse, in assessing risk from an auto insurance perspective, the minority neighborhood was actually safer. This disparity can be devastating for many consumers.
Some companies consider other factors, such as credit score and occupation, which can affect premium pricing. Still, many companies refuse to collect or publish the data needed to assess redlining and discriminatory practices arguing such data is a trade secret. The lack of data makes it difficult to analyze and discover these potential discriminatory disparities. The investigation sought data from all 50 states and the District of Columbia, but only four states said they collected such data and provided it (California, Illinois, Missouri, and Texas).
The insurance industry has a long and troubled past with discriminatory tactics. Thurgood Marshall, who went on to become a Supreme Court Justice, was denied auto insurance based on his living in a certain area and noted, “it is practically impossible to work out a court case because the insurance is usually refused on some technical ground.” While we have thankfully made strides in making discriminatory tactics illegal, this analysis indicates there may still be more ground to cover.
Source: A World Apart, Consumer Reports, July 2017
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