As something that tens of millions of American driver are required by law to pay for every month, auto insurance is one thing that most people believe should be priced fairly. It doesn’t offend notions of fairness for a bad driver to face steeper premiums, and it’s accepted practice in the industry to include customers’ age and gender in computing their rate. But what if insurance companies appear to be systematically charging entire racial or socioeconomic groups different amounts for the same product?
This has been a concern in the past: There’s evidence insurance companies use proxies for socioeconomic status such as occupation and educational background to set rates, rather than relying on indicators of driving safety, such as an accident-free record. The typical response from the insurance industry is that this data is highly useful as indicators of financial risk; if a customer is going to be less likely to pay his bill on time, the company would like to know.
A new report by the Consumer Federation of America found that insurance premiums also differ greatly by race. The report found that even among safe drivers, areas that are predominantly African American are charged significantly higher premiums for auto insurance. The CFA’s analysis looked at quotes from the five largest insurers—Allstate, Farmers, Geico, Progressive, and State Farm—by zip code, and found that premiums were on average 70 percent higher for residents of mostly black communities, versus mostly white ones.