A recent study has found that Black and Hispanic drivers often pay more for auto insurance than other groups. However, they also tend to have more claims and driving violations.
The authors of the study acknowledge that the higher insurance costs for Black and Hispanic drivers can be attributed to their increased claims and poorer driving records. They admit that more research is needed to understand why these drivers have more claims and errors. Additionally, they suggest that factors such as discounts, financial status, infrastructure, and law enforcement practices may also play a role in the higher premiums for these groups. They call for further investigation into these issues.
The report, titled Evaluating Unintentional Bias in Private Passenger Automobile Insurance, was published by the District of Columbia Department of Insurance, Securities and Banking (DISB). It analyzed data from one-vehicle auto policies in D.C., which account for 64% of all auto policies in the area. The researchers also conducted interviews with industry experts and consumer representatives.
DISB Commissioner Karima Woods stated, “This investigation is a key step toward understanding and addressing financial barriers that could unfairly impact certain racial groups. Our goal is to ensure that D.C. residents are treated equitably, regardless of race, and that insurance premiums reflect actual driving risk.”
Premium Disparities
According to the study, Black drivers pay an average of 1.46 times more than white drivers, resulting in an annual premium gap of about $326. Hispanic drivers pay 1.20 times more than white drivers, while Asian-Pacific Islander (API) drivers pay similar rates to white drivers.
In terms of average annual premiums, white drivers pay approximately $705, while Black drivers pay $1,031, Hispanic drivers pay $849, and API drivers pay $722. DISB examined factors like age, policy type, driving record, claim history, and gender to understand these premium differences.
The analysis revealed that Black drivers, on average, file more claims than white, Hispanic, or API drivers. Their average claims are 2.38 times higher than those of white drivers, indicating that Black drivers are generally considered higher risk in insurance terms.
The study also noted that driving records significantly contribute to the premium gap. Black drivers have more at-fault accidents, particularly those with DUI records. Even after considering various factors, there remains an average premium difference of $271 between Black and white drivers.
Race and Insurance Rates
The authors argue that since insurers do not set rates based on race, any differences in average premiums must be linked to other rating characteristics. They state, “If results differ by race, there must be factors in rating plans that correlate with race, leading to different average premiums.”
The study suggests that factors like credit-based insurance scores and discounts for homeownership may contribute to the premium differences. Insurers often use predictive models to set premiums, which could inadvertently reflect racial disparities.
The report highlights that certain factors, such as multiline discounts and payment options, may disproportionately benefit wealthier drivers. For instance, discounts for paying in full favor those who can afford to pay upfront, potentially widening the gap between what Black and white drivers pay.
Need for Further Research
The authors call for more research into the reasons behind the higher claims rates among Black and Hispanic drivers. They suggest examining whether differences in law enforcement or infrastructure contribute to these disparities.
The study also indicates that wealthier drivers often have advantages that lower their insurance costs. For example, they are more likely to cover damages without filing claims and live in areas with better road conditions.
A previous examination by DISB found that the models used by insurers did not show direct bias in the rating process. However, it could not rule out the possibility of unintentional bias.
DISB plans to conduct further studies and develop a “balancing test” to evaluate which factors should be considered in premium calculations.
Insurer Responses
Insurer trade groups responded quickly, arguing that the study shows auto insurance rates are based on risk, not race. They questioned DISB’s methodology for determining race in its analysis.
The American Property Casualty Insurance Association (APCIA) stated, “Insurers do not collect or use race information to set premiums.” They emphasized that higher premiums correlate with higher claims and losses, not racial discrimination.
The National Association of Mutual Insurance Companies (NAMIC) also stated that insurers do not use race as a factor in pricing coverage and criticized the study’s approach.
To infer race, DISB used a geocoding method based on U.S. Census data, which is a common practice among regulatory agencies.
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