For decades, auto insurers have been observed to charge higher average premiums to drivers living in predominantly minority urban neighborhoods than to drivers with similar safety records living in majority white neighborhoods. Insurers have long defended their pricing by saying that the risk of accidents is greater in those neighborhoods, even for motorists who have never had one. But a first-of-its-kind analysis by ProPublica and Consumer Reports, which examined auto insurance premiums and payouts in California, Illinois, Texas, and Missouri, has found that many of the disparities in auto insurance prices between minority and white neighborhoods are wider than differences in risk can explain.
In some cases, insurers such as Allstate, Geico, and Liberty Mutual were charging premiums that were on average 30 percent higher in zip codes where most residents are minorities than in whiter neighborhoods with similar accident costs. (Read a full description of the methodology.)
Our findings document what consumer advocates have long suspected: Despite laws in almost every state banning discriminatory rate setting, some minority neighborhoods pay higher auto insurance premiums than do white areas with similar payouts on claims. This disparity may amount to a subtler form of redlining, a term that traditionally refers to denial of services or products to minority areas. And, since minorities tend to lag behind whites in income, they may be hard-pressed to afford the higher payments.
Rachel Goodman, staff attorney in the American Civil Liberties Union’s racial justice program, said ProPublica’s findings are distressingly familiar. “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,” she said.
“We already know that zip code matters far too much in our segregated society,” Goodman said. “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.” The Insurance Information Institute, a trade group representing many insurers, contested ProPublica’s 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, chief actuary of the institute.
[Note: what bullshit. The insurance companies are the most meticulous about collecting metadata. They know more about the ethnicity of your neighbors than you do.] The impact of the disparity in insurance prices can be devastating, a roadblock to upward mobility or even getting by. Auto insurance coverage is required by law in almost all states. If a driver can’t pay for insurance, she can face fines for driving without insurance, have her license suspended, and eventually end up in jail for driving with a suspended license. Higher prices also increase the burden on those least able to bear it, forcing low-income consumers to opt for cheaper fly-by-night providers, or forgo other necessities to pay their car insurance bills.
Otis Nash works six days a week at two jobs, as a security guard and a pest control technician, but still struggles to make the $190.69 monthly Geico car insurance payment for his 2012 Honda Civic LX.
“I’m on the edge of homelessness,” said Nash, a 26-year-old Chicagoan who supports his wife and 7-year-old daughter. But “without a car, I can’t get to work, and then I can’t pay my rent.”
Across town, Ryan Hedges has a similar insurance policy with Geico. Both drivers receive a good-driver discount from the company.
Yet Hedges, who is a 34-year-old advertising executive, pays only $54.67 a month to insure his 2015 Audi Q5 Quattro sports utility vehicle. Nash pays almost four times as much as Hedges even though Nash’s run-down neighborhood, East Garfield Park, with its vacant lots and high crime rate, is actually safer from an auto insurance perspective than Hedges’ fancier Lake View neighborhood near Wrigley Field.
On average, from 2012 through 2014, Illinois insurers paid out 20 percent less for bodily injury and property damage claims in Nash’s predominantly minority zip code than in Hedges’ largely white one, according to data collected by the state’s insurance commission. But Nash pays 51 percent more for that portion of his coverage than Hedges does.