Study Finds Car Insurance, Insurers Raise Rates in Minority Neighborhoods
car insurance study
A car insurance study in four states found that drivers living in some minority neighborhoods were charged higher rates than similar drivers in mostly white areas, even when the average risk of a claim was similar.
The Car Insurance report, by the nonprofits ProPublica and Consumer Reports, covers rates in California, Illinois, Missouri and Texas, the states that made data available. The report examined quoted insurance premiums, as well as average claims paid by insurers — the first use of payout data to examine racial disparities in car insurers premiums, the researchers said. The analysis found that pricing disparities between neighborhoods that were mostly white and those inhabited mostly by minorities were wider than differences in risk could explain.
In some cases, the car insurance report said, major insurers charged premiums that were on average 30 percent higher in minority ZIP codes than in comparable nonminority neighborhoods. “This overpricing,” the report said, “may amount to a subtler form of redlining,” a term that refers to denial of services to minority areas.
The car insurance report, published Wednesday by Consumer Reports, said it was not entirely clear why insurers charged more in minority areas. It could represent a “vestige” of the days when racial discrimination by businesses was routine, researchers of the car insurance report said, or it might be that proprietary algorithms used by individual insurers “inadvertently” penalized minority areas.
However, “The car insurance report raises the question of whether those rates are justified,” said Julia Angwin, a senior reporter at ProPublica and one of the report’s authors.
The car insurance industry and some state regulators criticized the report, saying it oversimplified the way companies set rates. Car Insurers “do not discriminate on the basis of race,” James Lynch, chief actuary of the Insurance Information Institute, a trade group, told the researchers.
In a call with reporters on Wednesday, Mr. Lynch said the institute had commissioned its own actuarial analysis of ProPublica’s data and determined that the car insurance conclusions drawn from the study were “flawed.” The institute did not make its analysis available because it was in draft form, he said, but expected to make it available when the report was completed.
The car insurance report resonated with consumer advocates. “I’m not surprised” by the findings, said Robert Hunter, director of insurance at the Consumer Federation of America. The federation has conducted a series of studies raising questions about the fairness of using nondriving criteria, like education and occupation, in setting car insurers rates. In 2015, the federation Published a story finding that rates are much higher in minority ZIP codes.
The federation’s studies did not include insurer payout data, which is “good addition” to the analysis, Mr. Hunter said.
How can I find more affordable rates on my car insurance?
Individuals must aggressively comparison shop, experts say. Consumer Reports suggests using TheZebra.com, an online tool that offers estimates from a dozen or more insurers, depending on the state. Drivers should compare rates often, said Tobie Stanger, a senior editor at the magazine, because the supposed benefit of getting a discount by remaining with the same insurer for a long time is “mostly a myth.”
Typically, one or two car insurers will offer lower rates in a given state. The magazine’s website offers a list of which insurers to check first, by state.
Can I lower my auto premium by raising my policy’s deductible?
Yes. Increasing your deductible — the amount you must pay before your insurance policy does — can help lower monthly premiums. Just be aware that if you have a claim, you will be responsible for more of the cost of any repairs.
Mr. Hunter said he considered mileage to be an “underreflected characteristic” in setting auto insurance rates, but some insurers are starting to weigh it more heavily. So if you don’t drive much, you might be able to lower your premium. charge a monthly base premium, plus an additional rate based on the number of miles you drive each month. The company installs a device in your car to track mileage.