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A new analysis of auto insurance rates in some states found sometimes dramatic price discrepancies for predominantly minority neighborhoods that ProPublica’s Julia Angwin says can’t be explained by driving risks. Hari Sreenivasan discusses the investigation with Angwin, plus gets another view from James Lynch, chief actuary of the Insurance Information Institute.
But first: Are auto insurance companies treating drivers of color differently by charging them more money?
A new analysis finds that is the case in a number of states.
Hari Sreenivasan has the latest in our Race Matters series. He's in New York.
Consumer groups have long contended that drivers in predominantly minority neighborhoods are charged more for insurance premiums than drivers in predominantly white neighborhoods.
Insurers had said that was due to a higher risk of accidents in those communities. But a new analysis by ProPublica and Consumers Union found the disparities in premiums are higher, sometimes much higher, even when the risk of an accident is essentially the same.
The team looked at data and more than 100,000 premiums in four states, California, Texas, Illinois and Missouri.
Julia Angwin of the ProPublica team joins me now.
So, what did you do? What did you find?
JULIA ANGWIN, ProPublica:
So, what we did was, we basically tried to take a predominantly minority neighborhood and a non-minority neighborhood with the exact same insurance risk. And that is measured by how much insurance have had to pay out in claims.
And we looked at the prices of the premiums in those neighborhoods and said, are they the same? And, oftentimes, what we found was, despite the fact that the payouts were the same and we had the same safe driver, that the minority neighborhood was being charged quite a bit more.
So, when we say the payouts, that means the amount of money that insurance has paid in those communities for whatever accidents might have been happened.
Right. Over a five-year period, all insurers have paid, on average, this amount per car.
And what is the underlying reason for this?
Well, I don't know actually why this disparity is taking place, but what the — what we — it raises the question about whether this pricing is fair, because insurance is supposed to be based on risk, and that's what the industry has always said.
But when you look at the risk that they truly bear, which is the cost that they have to pay out for claims, you see these price disparities that can't be explained by that risk.
Is there enough information out there to be able to make this assessment?
We were hard-pressed to get this data. We only got data from four states. We requested it from all 50 states. Only four said they collected it and would release it to us.
And so we could only do this analysis there.
And these four states, are they representative of a cross-section? Because different states have different types of insurance rules, obviously different types of driving conditions.
Yes, they do.
So, basically, we have a nice range, because California is considered one of the most regulated states for insurance. The industries have to submit their rates to the regulators before they can issue them. Illinois, the least regulated, they don't have to submit their rates to anybody for approval before they issue them, and it's considered a very competitive target.
And then we have two states in the middle, Missouri and Texas, with kind of basic level of regulation that is considered normal in the industry.
We spoke to James Lynch of the insurance industry, and this is what he had to say.
JAMES LYNCH, Chief Actuary, Insurance Information Institute:
They kind of started off on the wrong foot, actually. In fact, I kind of feel sorry for them, because they spent a good year-plus, as I understand it, putting this study together.
But what they failed to do was, they failed to take into account that people in different neighborhoods drive differently. And because that's the case, you have to compare those drives with a set of drivers on the premium side that drive differently. So, they really aren't comparing like to like. They're not making an apples-to-apples comparison.
But a 30-year-old driver woman that is a safe driver across zip codes, across state lines, why is that not a fair comparison?
Well, when they do that, what they are saying is that the only reason rates vary from one territory to another is because of the territory itself.
But the truth is that, in any neighborhood, some drivers are driving more miles than others. Some drivers are getting in more accidents than people in other neighborhoods. And you need to take that into account when you're setting rates.
And, as far as we can tell, they haven't done that. And we have actually hired a firm to peer-review their work, and it looks like they're coming to a very similar conclusion to ours.
Is there any reasoning that you can come up with for why these disparities exist from zip code to zip code?
Well, as I said, if you took these on a like-to-like basis, if you looked at all of the characteristics of drivers in an area, race not being one of them, because insurance companies do not ask questions about race. In many places, it's illegal for them to ask them about race.
And they go one further. They just don't ask, because there's actually nothing to be gained from the exercise. And so what they do ask about is, they ask about things like the kind of car you drive, the number of miles that you drive, what your driving record is. And then, based upon those concrete variables, your rate is set.
So, he takes aim at your methodology and says the conclusion is flawed.
You know, as of yet, we have not heard from anyone about any errors that are correctable that we need to correct in this, and we're always open to hearing that.
We approached the industry and actually lots of academics and experts to review our methodology for months in advance. And so, as of right now, I don't have any corrections to make to it. And I await the response that the industry said they're going to publish soon.
So, the insurance industry says, you know, it's not apples to apples to compare the same person at the same age with the same driving record because different people in different communities drive differently.
There's just a much larger pool to compare.
So, the insurance industry has a way of dealing with the problem you're describing, which is that they assign territories different risk ratings. And those are what these insurance quotes are based on.
So, when we're analyzing the quotes that they give to each person, that's based on their own assessment of the riskiness of that neighborhood. And what we're doing is comparing that to the payouts that they made in that neighborhood.
Why does this all matter at the end of the day?
Why this matters is that this is just one of many areas of life where you see minority neighborhoods being treated disparately.
And there's an explanation out there that says, oh, it's because it's so risky, and, basically, it's deserved, right? They're paying higher prices, but it's because it's a dangerous neighborhood.
And this just raises the question, which is, once again, that the facts don't support that analysis. The facts don't show that these neighborhoods are riskier than the ones that are getting cheaper prices, in most cases.
All right, Julia Angwin of ProPublica, thanks for joining us.
Thank you so much.
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