Auto Insurers Engage in Economic and Racial Price Discrimination Based on Residence

Automobile Accidents | Insurance Company | Insurance Premiums

By Jacob W. Gent

January 31, 2019

How much you pay for auto insurance may depend on where you live. A recent study by the Consumer Federation of America (CFA), a non-profit organization with a mission to support consumers through research, advocacy, and education, found that auto insurance companies are charging significantly different premiums to customers based on their ZIP code.  The study found a good driver in one ZIP code may be charged as much as 62 percent more than a similar good driver living literally across the street, or even next door.

The CFA researchers used a generic profile of a good driver (30-year-old woman with a high school diploma and a full time job, who drives a 2008 Camry and has a history of prior coverage) to obtain online premium quotes for a state-mandated minimum liability policy from six carriers: Allstate, Farmers, GEICO, Liberty Mutual, Nationwide, and Progressive in ten cities across the United States. In addition to the different premiums based on ZIP codes, the study also found that those ZIP codes with higher premiums had a lower median income across its population, and a higher percentage of non-white residents than the adjacent, lower-cost ZIP code.

Noteworthy findings from the CFA report include:

  1. Good drivers residing in lower-income ZIP codes were charged annual premiums that were on average $410 more than their neighbors in ZIP codes with higher median incomes.
  2. Residents of lower-priced ZIP codes were overwhelmingly white (72 percent on average) while ZIP codes with higher premiums had far more people of color.
  3. In every city tested, at least one insurance company charged $200 more for the same coverage to someone living in the lower income, non-white ZIP code.
  4. People living on city borders in Trenton and Detroit respectively paid 43 percent and 62 percent more, compared to drivers living across the ZIP code line in Lawrence Township, NJ and Grosse Point, MI.
  5. Of the companies surveyed, Farmers and Allstate rates increased the most across ZIP code boundaries; $734 (31 percent) and $661 (28 percent), respectively.
  6. Nationwide, GEICO, and Progressive also showed large increases: $373 (22 percent), $315 (30 percent), and $253 (23 percent), respectively.

Price hikes based on ZIP codes like those identified by the CFA survey are symptoms of a larger problem: that insurance companies base their premium rates on an array of socio-economic factors, such as annual income, job title, level of education, credit rating, and homeownership status.  As a result, lower- and moderate-income, non-white consumers are subject to higher priced insurance.  This is unfair and unjust.

In a letter to the nation’s Insurance Commissioners dated October 15, 2018, the CFA called for each state’s Department of Insurance to investigate insurers’ use of ZIP codes when setting policy premiums and to develop rules that eliminate the sharp differences in costs along community borders:

Insurance companies are not supposed to treat similar risks differently, and there is no way that two people who can talk to each other from their yards can be considered different risks based on geography.  Since states require drivers to purchase private auto insurance, the companies and government regulators have a special obligation to ensure fairness in pricing.

We agree.  At Adler Giersch, we strive to promote public awareness of insurance issues that affect those who have been injured by the fault of someone else.  Insurance coverage should be equally available to all, regardless of race or socio-economic status.