A recent study of car insurance pricing reveals that Texas drivers living in minority neighborhoods often are charged more for auto insurance than people with comparable risk profiles who live in Anglo or non-minority areas.
A study just issued by Consumer Reports magazine and ProPublica indicates that insurers — including Liberty Mutual, Geico and Allstate — may charge an average of 30 percent more for auto insurance in Texas ZIP codes inhabited mostly by minorities. Such disparities also were found in California, Illinois and Missouri.
The four states were the only ones surveyed, since insurers in those states were the only ones where insurance companies provided data at the survey’s request.
ProPublica, a New York City-based nonprofit corporation, is self-described as an independent nonprofit newsroom producing investigative journalism in the public’s interest.
The study showed that many auto insurance price disparities between Anglo and minority neighborhoods are wider than can be accounted for by risk differences in those areas. (By risk, the study refers to risk to the insurance company, based on yearly claims against is policies.)
According to the study’s report, “This disparity may amount to a subtler form of redlining, a term that traditionally refers to denial of services or products to minority areas.”
The study evaluated over 100,000 premiums charged for liability insurance covering bodily injury and property damages in the four states. It compared rates between different ZIP codes that had similar risk profiles for insurers.
In the end, significant “gaps” were found between the premiums charged in Anglo areas and minority neighborhoods for drivers who had identical credit scores, accident histories and driving records.
San Antonio auto rates for minorities were found to be higher on the city’s south side. Drivers living in the 78214 ZIP code, who are mostly Hispanic, were charged an average of $603 yearly for basic liability coverage, while Texas drivers living in the small Panhandle town of Seagraves, who are mostly Anglo and pose a similar claims risk for insurers, were charged an average of $482 yearly by 18 insurance companies.
The study also found that, in high-risk minority areas (again, meaning a higher rate of average claims, so a higher risk to the insurer), at least 50 per cent of insurers charged higher premiums for safe drivers with good credit than they charged drivers with the same risk profile who lived in non-minority areas.
Some insurers have criticized the study, which they say was based on flawed methodology. Also critical is the Insurance Information Institute, an industry trade group. Yet the insurers themselves did not provide information for the study from 46 states.
As for methodology, in order to equalize drivers’ variables, including accident history and age, the study focused on only one type of driver: a female teacher, 30 years old, with no moving violations or accidents. In other words, the focus was a fairly young and safe driver.
ProPublica filed a public record request in every state to obtain data on claims payouts with this driver in mind. The four states mentioned were the only ones to yield the data, and that, in itself, is telling.
According to Consumer Reports, Rachel Goodman, a staff attorney for the American Civil Liberties Union’s racial justice program, found the study’s findings “distressingly familiar,” fitting 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 called it “dispiriting” to know that “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 Texas Department of Insurance claims that it examines all car insurance rates to ensure they are not discriminatory or excessive. Charging higher auto rates for minorities would be against state law, which requires auto liability insurance for all drivers.
Geographical differences in policies’ costs, the TDI says, must be based on sound actuarial information. That includes such things as higher traffic congestion in some areas, which can lead to increased accidents. But Texas law prohibits pricing variables based upon race.
Birny Birnbaum, a Texas consumer advocate and director of the Center for Economic Justice, has cited “redlining” in Texas previously, claiming that Safeco, USAA, Nationwide, Farm Bureau and State Farm had smaller market shares in minority areas than elsewhere.
Birnbaum told Consumer Reports that regulators “are no better equipped to analyze or address these problems than they were 20 or 30 years ago. If you can’t even monitor the market to identify the problem,” he said, “you’re certainly not going to be in a position to address the problem.”