Why Do Minorities Pay More for Car Insurance?

Buying a Car
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Racism and racial discrimination have existed for centuries. In the decades since the Civil Rights Movement began, things have definitely gotten better for minority groups and people of color in many ways. But discrimination still exists, even in places, you would never expect it to.

One of those places, surprisingly, is the insurance market. Even in 2018, Black Americans pay much more than White Americans do for something that is required by law in nearly every state: Car insurance.

It is sad, but it is true. In recent years, U.S. neighborhoods have become more racially segregated. African Americans who live in predominantly Black neighborhoods are paying a price as a result, literally: A pioneering study conducted by the Consumer Federation of America in 2015 found that good drivers who live in African American neighborhoods are charged much more than drivers who live in White communities—a lot more. Drivers who live in these communities are on average quoted premiums that are 70 percent more expensive than premiums for drivers who live in White communities—an average of $438 dollars per year more.

Is This Because African American Communities Are More Dangerous?

Contrary to popular (and racist?) belief, the racial makeup of a neighborhood on its own does not at all determine how much crime exists in a neighborhood. Yes, lower income neighborhoods are often more likely to have more crime. But when you control for income and population density, White and Black neighborhoods have essentially the same crime rates. The above study found that even when accounting for population density and income, drivers who live in Black neighborhoods are charged much more.

Is This Because African Americans Are Often Poorer Than Whites?

It’s true that the poverty rate among African Americans is more than double the poverty rate for White Americans. But this does not explain the findings at all—especially because wealthier African Americans are likely to pay even more of a price for living in Black neighborhoods than poorer African Americans do: the report found that upper-middle income Blacks who live in Black neighborhoods paid a full 194 percent more for car insurance on average than upper-middle income individuals living in White neighborhoods—a difference of $1,396!

That’s Terrible! What Do Insurance Companies Have to Say for Themselves?

By and large, the insurance industry has never admitted that Black Americans pay more for car insurance. In fact, they are often downright defensive... and offensive. In 2014, the National Association of Mutual Insurance Companies sent a letter to the Federal Insurance Office that insinuated Black Americans can afford to pay more for car insurance because...wait for it… they spend money on their pets, toys, alcohol, tobacco, and recording equipment, like normal humans, often do:

"...data reveal that households in the two lowest quintiles spent nearly as much on alcohol and tobacco products combined as on automobile insurance, and that they spent more on audio and visual (A/V) equipment and services than on automobile insurance...we would submit that the percentage of household income spent by minority consumers on automobile insurance appears to be reasonable relative to the percentage of income spent on non-essential goods," the insurance group wrote.

Included in the non-essential list were pets and toys.

In other words, insurance companies seem to think it’s okay to charge Black Americans more for car insurance for no reason other than the fact that Black Americans spend money on other things.

In response to the previously mentioned study, J. Robert Hunter, the organization’s Director of Insurance said:

“The pricing disparities for state-mandated minimum auto insurance coverage quoted to drivers in primarily African-American communities are hard to fathom actuarially and look a lot like unfair discrimination.”

That Sounds Really Bad, But This Is Just One Study. Is There Other Evidence Of This Problem?

Sadly, yes. An analysis released in 2017 by Consumer Reports and Propublica found that in California, Illinois, Missouri, and Texas, premiums are still higher in minority neighborhoods in general, not just African American ones.

Rachel Goodman, a staff attorney in the American Civil Liberties Union’s racial justice program, provided a stark reminder that these findings fit a larger, systemic issue in our country: “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.

Is Anyone Doing Anything About It?

Advocacy groups are certainly trying, and due in part to the research above, some lawmakers are, too. In 2018, California Congressman Mark Takano proposed legislation calling on the federal government to investigate the issue of racial disparities in the insurance market. Unfortunately, that’s about as much progress as anyone has made on the federal level. As more and more research is done on the issue, more public pressure will likely lead to better results. Until then, it’s up to consumers and advocacy groups to demand change.