Auto insurance commercials often brag about the discounts they give to safe drivers. But African-American drivers are still paying more – even if they have a good driving record.
“African-Americans face higher premiums with an almost unblemished consistency. It’s really striking,” Consumer Federation of America Director of Insurance Doug Heller tells Finurah.
It’s against the law for auto insurers to use race as a factor in rate calculation. But companies’ use of socioeconomic data results in disproportionately higher prices for Black drivers. Things like zip code, credit score, education level and marital status are all part of a complicated formula that companies use to assume how likely it is that someone will continue paying premiums or to get into an accident that will cost the insurer money.
Structural racism and discrimination means that African-American drivers are more likely to have lower credit scores, lower levels of educational attainment, and to live in segregated neighborhoods or ones considered at higher risk for accidents or theft. Insurers argue that these risk factors justify higher premiums because they believe drivers with these characteristics are more likely to file claims or be unable to pay their bills.
But lower socioeconomic status doesn’t necessarily correlate with being a bad driver or unable to pay the bill.
Heller says there’s another reason that people judged to be of lower socioeconomic status pay higher premiums — insurance companies use them to effectively subsidize the rates of customers with higher incomes.
“When they’re slicing and dicing and pricing people based on socioeconomic characteristics rather than driver safety, they’re looking for drivers that will provide more profit in the long term,” Heller says. “They’re looking for people that will insure lots of cars with lots of coverage, that will want to buy home insurance too, maybe have a boat to insure, and who might want to sign up with their investment affiliate or sign up for their credit card.”
Longtime Bias
A 2015 report by the Consumer Federation of America found that safe drivers who are African-American are charged significantly more for insurance premiums than their white counterparts. It found that on average, a good driver living in a predominantly African-American ZIP code would pay 70 percent more for minimum liability coverage than a good driver in a predominantly white ZIP code. It also found that the average premium for those in upper-middle-income Black neighborhoods was nearly three times what a similar driver in a white upper-middle-income neighborhood would pay.
A 2020 report found this to still be true. Insurance comparison website Insurify’s Insuring the American Driver report looking at trends in car insurance cost found bias is still present in car insurance rates. While the 45-page report contained just one page on race, there were some significant findings. Among them:
- Black drivers with clean records who live in majority-Black neighborhoods dish out almost 20% more than white drivers who live in majority-white neighborhoods and have records with previous driving offenses.
- Black homeowners living in majority-Black neighborhoods pay 13% more in car insurance than white renters in white neighborhoods.
- A Black driver with excellent credit living in a Black neighborhood pays 24% more than a white driver with bad credit who lives in a white neighborhood.
How Credit Scores Affect Insurance Rates
Credit scores are another criteria that can have a disproportionately negative impact on Black drivers. Black people have an average credit score of 677 – the lowest of any racial group. And the lower the credit score, the higher the car insurance premium. The Federation’s research found that 5.4 percent of white drivers with good driving records were penalized with higher rates when they had a credit score below 620. But their 21.3 percent of their Black counterparts were penalized with higher rates.
Insurance comparison site The Zebra found that a driver with credit rated as “very poor” (described as having a score between 300 and 579) can pay an average of $1,500 more per year than a driver with an “exceptional” rating (between 800 and 850).
Heller says taking an hour to shop around and see which companies are offering the best rates is worth it. Most companies, but not all, use socioeconomic factors to determine premiums.
“If you’re on a website searching for insurance and the company asks you a question like, ‘What’s your job title?’ or, ‘How much education do you have?’ know they’re not just asking for the sake of it. They’re going to use it for pricing,” Heller says. “So if you’re unemployed, or a blue collar worker, or have a low credit score, find someone who isn’t asking.”
The Zebra offers a guide to finding a car insurer that doesn’t use credit scores as a major part of its rate calculation. App-based auto insurance company Root Inc. has pledged to phase out the use of credit scores by 2025, and says they currently only play a small role in determining insurance rates. Root instead relies on a smartphone app that tracks drivers’ behavior, which benefits safe drivers but has also raised concerns among data privacy advocates.
Actions Victims of Car Insurance Can Take
Consumers who suspect their insurer is unfairly charging a higher premium can check with the Consumer Financial Protection Bureau to see if other discrimination complaints have been filed against the insurer. They can also file a complaint of their own with the bureau. It also might be worth considering whether to file a complaint with the state insurance regulatory agency.
Heller says filing a complaint isn’t likely to get an insurer to lower an individual’s rate. But if enough people complain about unjust pricing, it can convince lawmakers and regulators that it’s a problem worth tackling.
