ProPublica and Consumer Reports released in 2017 a first-of-its-kind analysis of auto insurance premiums and payouts in California, Illinois, Texas and Missouri. They 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 instances, the big insurers such as Allstate, Geico and Liberty Mutual, were charging 30 percent more in zip codes with a majority of minority residents.
Despite laws in every state banning discriminatory rate-setting, this disparity amounts to a subtler form of redlining, which is a term that refers to denial of services or products in minority areas.
American Civil Liberties staff attorney Rachel Goodman said the findings were distressing. “We already know that zip code matters far too much in our segregated society.” Goodman added, “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 or not your neighbors are safe drivers.”
The trade group representing insurers, the Insurance Information Institute, contests ProPublica’s findings. Chief Actuary James Lynch said, “Insurance companies do not collect any information regarding race or ethnicity of the people they sell policies to. They do not discriminate on the basis of race.”
The U.S. Treasury Department defines auto insurance as affordable if it costs two percent or less of household income. In a different part of the study, ProPublica found households in minority-dominant zip codes spent 11 percent of their household income on auto insurance compared with five percent of their household income in majority-white zip codes.
Zip code is not the only factor, however, that auto insurance companies use when giving a quote.
In August 2017, the Coalition Protecting Auto No-Fault (CPAN) released a Michigan study conducted by Los Angeles-based insurance researcher Douglas Heller. CPAN is a powerful group of medical providers and attorneys which are currently battling insurers over Michigan’s auto insurance rates which are some of the highest in the country. With the study, CPAN wanted to prove that Michigan’s rates were not just due to the state’s provision of unlimited medical coverage for auto accident victims.
The Heller study compared online quotes from six national insurance carriers using a 30-year-old unmarried woman with a perfect driving record and a 2007 car that was driven 10,000 miles annually. He obtained the quotes using the same person with the same address in each of eight Michigan cities: Detroit, Flint, Grand Rapids, Howell, Iron Mountain, Ludington, Owosso, and Warren. He examined the impact on auto insurance quotes that insurers give Michigan motorists based on factors that have nothing to do with whether or not the motorist is a safe driver. These factors include job title, level of education and whether they rent or own their home. Heller did not take into account credit scores which could also be used to calculate a higher premium due to a poor borrowing history.
In each of the eight Michigan cities, Heller uncovered that drivers at the bottom of the income ladder were quoted the highest rate. A factory worker that rented a home was quoted an average of $233 more per year than a lawyer who owned a home even though both were listed at the same address and drove the same ten-year-old car. Detroit had the widest gap: the lawyer was quoted $643 less annually than the factory worker.
Detroit Mayor Mike Duggan and MI House Speaker Tom Leonard released a plan in 2017 to drastically cut auto insurance rates statewide, something especially relevant in Detroit. Unclear yet if the plan will help solve the auto insurance equity issues plaguing the entire state.
Auto insurance is required by law in most states. If a motorist cannot pay for insurance and is caught driving without coverage, then penalties ranging from fines to license suspensions can be imposed. This is the start of a black hole spiral for many motorists who need to drive so they can provide for their families. Auto insurance for safe drivers should be equitable across the board so that everyone who needs insurance can be assured that he or she can afford it and keep it.