How Your Race Affects Your Car Insurance Rates

April 9th 2017

From avoiding fender-benders to keeping moving violations off your record, there's a lot you can do to keep your car insurance rates low. However, according to a new Pro Publica report, there's one factor determining your premium that's out of your control: the racial makeup of your neighborhood.

According ProPublica's report, large insurance companies like Allstate, Geico, and Liberty Mutual regularly charge roughly 30 percent to people who live in minority communities compared to those from white communities.

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Furthermore, ProPublica found that the rates didn't appear to reflect how risky the neighborhood actually is.

"In Missouri, we found 21 of 25 companies with pricing disparities that didn’t appear to be justified by risk," the report states. "Berkshire Hathaway, Liberty Mutual and Auto Club Enterprises all had subsidiaries that were charging 30 percent more on average in risky minority neighborhoods compared with similarly risky majority white neighborhoods."

This isn't the first time it's been found that the car insurance industry tends to favor white people.

A 2015 report from the Consumer Federation of America found that companies like Allstate, Farmers, Geico, Progressive and State Farm were charging roughly 70 percent more for residents of mostly black communities than what they charged similar white communities. The researchers accounted for risk, and they could not find a reason why these communities were charged more.

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Mary Heen, a professor of law at the University of Richmond, told ATTN: that things like a person's zip code are often used as a proxy for their race.

It may not be lawful to charge a black person more for insurance, but you can essentially get the same result by charging predominantly black neighborhoods more. She said even if it's not intentional, the effect is the same.

"One of the distinguishing features of the insurance industry is that in other areas of the law —like in education, public accommodations and employment — race can't be used as an explicit factor and gender can't be used as an explicit factor, but in the insurance industry race used to be used as an explicit factor, and gender currently is being used as an explicit factor in most states," Heen said.

It used to be legal to charge black citizens different rates for life insurance, and lawsuits over this practice were still being argued as recently as 2004. It became illegal to charge differently based on race in the 1960s. For car insurance, gender is still factored in when rates are decided.

Robert Hunter, the director of insurance at the Consumer Federation of America, told ATTN: that it's hard to determine why these companies charge certain communities more, because they refuse to release the data showing how the rates were determined. "Nobody has a perfect methodology, because the insurance companies refuse to give us the data," he said. The companies often say releasing this data would reveal trade secrets. "Then they attacks us for not having the data they won't give us," Hunter said.

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