Car Insurance Premiums Higher in Minority Neighborhoods than White Areas with Same Risk

Some major insurance companies charge minority neighborhoods up to 30 percent more

Car Insurance Premiums Higher in Minority Neighborhoods than White Areas with Same Risk
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April 05, 2017

A new analysis conducted by ProPublica and Consumer Reports has found that auto insurance companies are charging higher premiums in minority neighborhoods than in white areas with similar levels of risk.

The analysis looked at premiums and payouts in California, Illinois, Texas, and Missouri. It discovered that the differences in price experienced by white and minority neighborhoods are bigger than can be explained by different levels of risk.

In some instances, such major insurers as Allstate, Geico, and Liberty Mutual were charging 30 percent higher average premiums in minority neighborhoods than in whiter areas that had similar accident costs.

The findings seem to confirm the long-held suspicion of consumer advocates that, in spite of laws in almost every state prohibiting the practice of setting rates based on discrimination, some minority neighborhoods are forced to pay larger car insurance premiums than white neighborhoods that have similar claims payouts.

The differences in price could amount to a more subtle form of redlining, a term usually used to describe the denial of services or products to minority areas. And the wage gap between whites and minorities often means that the latter have a much harder time affording the higher amounts.

"These results fit within a pattern that we see all too often — racial disparities allegedly result from differences in risk, but that justification falls apart when we drill down into the data," said Rachel Goodman, staff attorney in the racial justice program at the American Civil Liberties Union. "We already know that zip code matters far too much in our segregated society. It is dispiriting to see that, in addition to limiting economic opportunity, living in the wrong zip code can mean that you pay more for car insurance regardless of whether you and your neighbors are safe drivers."

Insurance industry trade group Insurance Information Institute contested the findings.

"Insurance companies do not collect any information regarding the race or ethnicity of the people they sell policies to. They do not discriminate on the basis of race," said James Lynch, the Institute's chief actuary.

Nearly every state requires drivers to have auto insurance, a requirement that lays a heavy burden on those whose premiums are higher. If they are unable to pay, they can be fined for driving without insurance, have their license suspended, and eventually arrested if they continue driving with a suspended license.

To avoid this, low-income consumers are often forced to either use a cheaper and often sketchier provider or to give up other necessities in order to buy auto insurance.