Is There Racial Bias in Car Insurance Premiums?

A young man reviews a car insurance policy over the phone.

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Over half a century since the civil rights movement began, racial discrimination exists in places where you would never expect it to.

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

In recent years, U.S. neighborhoods have become more racially segregated. Black consumers who live in predominantly Black neighborhoods are paying a price as a result: A pioneering study conducted by the Consumer Federation of America in 2015 found that good drivers who live in Black neighborhoods are charged more than good drivers who live in White communities—a lot more.

Drivers who live in Black communities are quoted premiums that are 70% more expensive than premiums for drivers who live in White communities—an average of $438 more per year.

Is This Because Black Communities Are More Dangerous?

In fact, 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.

However, the Consumer Federation of America study found that even when accounting for population density and income, drivers who live in Black neighborhoods are charged much more.

Is This Because Black Americans Are Often Poorer?

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

What Do Insurance Companies Have to Say for Themselves?

The insurance industry has never admitted outright that Black Americans pay more for car insurance. In fact, some industry representatives have been downright defensive on the subject.

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 people often do:

" 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.

In other words, the argument would seem to be that it’s OK to charge Black consumers more for car insurance for no reason other than the fact that they spend money on other things as well.

In response to the Consumer Federation of America 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.”

Is There Other Evidence of This Problem?

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 predominantly Black neighborhoods.

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 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.