Minority residents pay higher auto insurance premiums than white areas with the same risk

"I almost became homeless," said Nash, a 26-year-old Chicago resident who provides for his wife and 7-year-old daughter. But "without a car, I can't go to work, and eventually I can't pay my rent."

On the other side of town, Ryan Hedges has a similar insurance policy to Geico. Both receive good driver discounts from the company.

But Hedges, a 34-year-old advertising executive, pays only $54.67 a month to insure his 2015 Audi Q5 Quattro SUV. Nash paid nearly four times as much as Hedges despite his poor neighborhood, East Garfield Park, with its vacant lots and high crime rate, was actually safer in terms of auto insurance than Hedges ' more upscale neighborhood near Wrigley Field.

On average, from 2012 to 2014, Illinois insurers paid 20 percent less for bodily injury and property damage claims in Nash's predominantly minority zip codes compared to those in more populous white ZIP codes, according to data compiled by the state's Insurance Commission. But Nash paid 51 percent more for his share of coverage than Hedges paid.

For decades, automobile insurance companies have been seen charging higher average premiums to drivers living in urban neighborhoods where most of the population is a minority than to drivers with similar safety records living in majority white neighborhoods. Insurance companies have always defended their pricing by saying that the risk of accidents is higher in those neighborhoods, even for drivers who have never had an accident.

But a first-time analysis by ProPublica and Consumer Reports, which tested auto insurance premiums and claims payments in California, Illinois, Texas, and Missouri, found that many disparities in auto insurance prices between minority neighborhoods and white neighborhoods outweigh any explainable differences in risk. In some cases, companies like Allstate, Geico, and Liberty Mutual charge premiums that are on average 30 percent higher in ZIP codes where most residents are minorities than in white neighborhoods with similar accident costs.

Our findings document what consumer advocates have long suspected: although nearly every state prohibits discriminatory pricing, some minority neighborhoods pay higher auto insurance premiums than white areas with similar payment claims. This disparity can be a more subtle form of redlining, a term that usually refers to the denial of services or products to minority areas. And, because minorities tend to lag behind compared to whites in terms of income, they may struggle to afford these higher payments.

Rachel Goodman, a staff attorney in the American Civil Liberties Union's racial justice program, said ProPublica's findings were alarming. "These results fit into a pattern we see often - racial disparities are thought to result from differences in risk, but their justification is shattered when we explore the data," he said.

"We already know that zip codes matter too much in our segregated society," Goodman said. "It's profound to see that, in addition to limiting economic opportunity, living in the wrong ZIP code can mean you pay more for car insurance regardless of whether you and your neighbors are safe drivers."

The Insurance Information Institute, a trade group representing many insurers, opposed ProPublica's findings. "Insurance companies do not collect any information about the race or ethnicity of the people they sell policies to. They don't discriminate based on race," said James Lynch, the Institute's chief actuary.

The impact of disparities in insurance prices can be devastating, hindering social mobility or even survival. Car insurance coverage is required by law in almost all states. If a driver is unable to pay for insurance, he can be fined for driving without insurance, have his license revoked, and eventually end up in jail for driving with a revoked license. Higher prices also increase the burden on those least able to afford to carry it, forcing low-income consumers to choose cheaper providers or ignore other needs to pay their auto insurance bills.

It is not yet entirely clear why some large car insurance companies still treat minority neighborhoods differently. This May in part be a remnant of an old practice dating back to an era when American businesses routinely discriminated against non-white customers. It's also likely that insurance companies ' proprietary algorithms inadvertently benefit white neighborhoods rather than minority neighborhoods.

We've limited our analysis to just four states that release the kind of data needed to compare insurance payments by geography. However, these countries represent a spectrum of government oversight of the insurance industry. California is the most regulated insurance market in the United States; Illinois is one of the least regulated.

In addition, some insurance companies that seem to charge prices based on neighborhood demographics operate nationwide. This raises the possibility that many minority neighborhoods across the country may pay too much for auto insurance, while white neighborhoods may pay too little.

The investigation represents the first use of industry pay data to measure racial disparities in car insurance premiums statewide. It's part of ProPublica's examination of the hidden power of algorithms in our lives - from the equations that determine Amazon's best-selling products to the calculations used to predict the likelihood of someone committing a crime in the future.

Our analysis examined more than 100,000 premiums charged for liability insurance - a combination of bodily injury and property damage that represents the minimum coverage drivers purchase in each state. To equalize driver-related variables such as age and accident history, we limited our study to one type of customer: a 30-year-old woman with a safe driving record. Then, we compared those premiums, provided by Quadrant Information Services, to the average amount paid by insurers for liability claims in each ZIP code.

In California, Texas, and Missouri, our analysis is based on state data that includes insurance claims received and payments by state insurers over the most recent five-year period available. In Illinois, the data covered a three-year period. We define a minority zip code as having a non-white population of more than 66 percent in California and Texas. In Missouri and Illinois, we define it as more than 50 percent, in order to have a fairly large sample.

In all four states, we found insurers with significant gaps between premiums charged in minority and non-minority neighborhoods with the same average risk. In Illinois, of the 34 companies we analyzed, 33 of them charged premiums at least 10 percent higher, on average, for safe drivers in minority zip codes than in similarly risk-averse white ZIP codes. (An exception is USAA's Garrison Property & Casualty subsidiary, which charges 9 percent more.) Six Illinois insurers, including Allstate, which is the second-largest insurer in the state, have an average disparity higher than 30 percent.

While in Illinois, the disparity remained roughly the same from the safest to the most dangerous ZIP codes, in the other three states the disparity was limited to the most risky neighborhoods. In such cases, prices in white neighborhoods remain about the same when risk increases, while premiums in minority neighborhoods rise.

In Missouri and Texas, at least half of the insurers we studied charged higher premiums for safe drivers in high-risk minority communities than in similarly at-risk non-minority communities. And even in highly regulated California, we found eight insurers whose prices in high-risk minority neighborhoods were more than 10 percent above those of similarly high-risk zip codes whose residents are more white.

In an effort to address this problem, a number of states have taken action. However, much work remains to be done to ensure that fair and non-discriminatory car insurance premiums are provided to all citizens, regardless of race or ethnicity. Discrimination in insurance should be abolished to achieve fairness in financial services to all citizens.

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