Despite Good Driving Records, African-Americans Still Face Higher Insurance Premiums, Expert Blames Variables Used In Formula to Determine Rates

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.

Photo by Fortune Vieyra on Unsplash

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.

Consumer Federation of America (Screenshot)

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.”

Read full story at Finurah here.

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