US Auto Insurance Redlining in 2017
May 10, 2017 10:07 AM   Subscribe

Minority Neighborhoods Pay Higher Car Insurance Premiums Than White Areas With the Same Risk

"For decades, auto insurers have been observed to charge higher average premiums to drivers living in predominantly minority urban neighborhoods than to drivers with similar safety records living in majority white neighborhoods. Insurers have long defended their pricing by saying that the risk of accidents is greater in those neighborhoods, even for motorists who have never had one. But a first-of-its-kind analysis by ProPublica and Consumer Reports, which examined auto insurance premiums and payouts in California, Illinois, Texas and Missouri, has found that many of the disparities in auto insurance prices between minority and white neighborhoods are wider than differences in risk can explain."
posted by indubitable (38 comments total) 21 users marked this as a favorite
 
The Insurance Information Institute, a trade group representing many insurers, contested ProPublica’s findings. “Insurance companies do not collect any information regarding the race or ethnicity of the people they sell policies to. They do not discriminate on the basis of race,” said James Lynch, chief actuary of the institute.

Today, in "missing the point". Jesus, it's not even close to the point. Not even in the same (predominantly nonwhite) zip code.
posted by supercres at 10:20 AM on May 10, 2017 [15 favorites]


This is an older variation on the algorithm as ideological laundering. I'm increasingly convinced the only way to fix redlining, and the modern variations of the same, is through serious reconsideration of first principles. Stuff like property rights and the like.
posted by Strange_Robinson at 10:37 AM on May 10, 2017 [2 favorites]


Not my crappy 1992 VW Golf in 2009 (last year I owned a car). My insurance in Oakland, CA in the Lake Merrit neighborhood was $400 annually. In the North Shore of Nassau Co, NY same minimum coverage was $1200 per year. 15 year old car in Oakland, where my first night I was awoke by gunshots. Later that same week there as a brazen take-over robbery in Grand St Chinese Restaurant. A restaurant worker was killed--he turned over his wallet, but wanted his green card back. Here in the North Shore we have multi-million dollar estates and had, at the time I moved here, a Ferrari dealership.
posted by xtian at 10:49 AM on May 10, 2017


This is an older variation on the algorithm as ideological laundering.

I heard algorithms described as "data, plus a definition of success," and I also like your "ideological laundering."

I'm proud to know one of the authors on this piece - and should point out that ProPublica does incredible investigative reporting on very consequential matters.
posted by entropone at 10:58 AM on May 10, 2017 [3 favorites]


Areas with the same risk, xtian. Ugh
posted by Stonestock Relentless at 10:59 AM on May 10, 2017 [3 favorites]


said James Lynch, chief actuary of the institute

Nominative determinism's Employee of the Month
posted by chavenet at 11:02 AM on May 10, 2017 [1 favorite]


Yep. I was paying $170 a month when I was thirty, had never had an accident and had a 1998 Prism but lived in a majority-minority low income neighborhood. My parents, who live in a suburb, paid something like $600 a year to insure their car.
posted by Frowner at 11:06 AM on May 10, 2017 [2 favorites]


This happened to me. I moved from a majority white neighborhood to a similar but majority non-white neighborhood once. My address was the only thing that changed. No tickets, no claims, no changes in my policy, just a change of address. In fact, I had covered parking in the new place, whereas I was parking in the street in the white neighborhood.

It was a long time ago, so I don't remember how much my rates went up at the time, but it was enough that it was a real problem for me at the time; and I had a hell of a time even getting anyone on the phone to explain what had happened.

I have an OK denouement though: I tend to over-research things and I really hate wasting money, and as a result, I have a fair amount of influence over a core group of people who just let me make purchasing decisions for them pretty much, so when I switched my car insurance*, four or five other people switched with me.

* I would name and shame the company, but this was long enough ago that I'm only about 80% sure I remember which one it was.
posted by ernielundquist at 11:07 AM on May 10, 2017 [1 favorite]


Yes, it's interesting how various policies are written and/or enacted without regard to race, yet just so happen to have a disproportionate impact on minority (especially African-American) communities. See also voter ID laws, stop and frisk policing, cuts to social programs, education "reforms" like NCLB and charter schools, and so on. I believe Lee Atwater referenced this sort of thing in the interview referenced here.
posted by TedW at 11:11 AM on May 10, 2017 [8 favorites]


Previously
posted by lalochezia at 11:15 AM on May 10, 2017 [1 favorite]


These responses are just maddening.

The Insurance Information Institute, a trade group representing many insurers, contested ProPublica’s findings. “Insurance companies do not collect any information regarding the race or ethnicity of the people they sell policies to. They do not discriminate on the basis of race,” said James Lynch, chief actuary of the institute.


Eric Hardgrove, director of public relations at Nationwide, said it uses “nondiscriminatory rating factors in compliance with each state’s ratemaking laws.”

It's not even that they missed the point. They know exactly what they're saying, and what they're saying is that they're redlining because it is illegal to discriminate based on individual race, but they can get away with it when they do it collectively.

Everyone fucking knows that. That is the entire point of redlining and the entire point of the report, and it's insulting that instead of just saying, "No comment" or "fuck you," they respond by reiterating what the report says and framing it as a rebuttal.
posted by ernielundquist at 11:32 AM on May 10, 2017 [12 favorites]


'Ideological laundering' is not a SR original. I pulled it from the Internet ether, but do a terrible job at maintaining sources.
posted by Strange_Robinson at 11:42 AM on May 10, 2017 [1 favorite]


"OK, OK, fine, we'll correct this discrepancy, but applicants in these areas will now have to count the number of bubbles on a bar of soap, for security purposes."
posted by tonycpsu at 11:45 AM on May 10, 2017


> My insurance in Oakland, CA in the Lake Merrit neighborhood was $400 annually. In the North Shore of Nassau Co, NY same minimum coverage was $1200 per year.

My household was paying over $1200 to insure one ten year old car while living in one of the whitest, professional-white-collar neighborhoods in Michigan. One year later, after moving to a lower-middle-class mixed-race neighborhood in a majority-African-American part of a city, less than $1,000 covered not only that same car but also its factory-fresh sibling.

Auto insurers are regulated at the state level. Once you cross state lines, it becomes a lot more difficult to distinguish redlining from the diverse ways that auto insurers are playing state governments.
posted by at by at 11:56 AM on May 10, 2017 [4 favorites]


If anyone was wondering what form reparations should take, compensation for this kind of bullshit is just one of a million.
posted by klanawa at 11:58 AM on May 10, 2017 [7 favorites]


I actually just went through this when helping a friend - I insure through USAA, which doesn't do this, and my insurance was half of what my friend who lives next door was paying with Geico. He has had less accidents than me, we both live in a majority-minority neighborhood.
posted by corb at 11:59 AM on May 10, 2017 [2 favorites]


Jim Lynch's Op-Ed Criticizing the Report

TL;DR: Although he does it in a repellently smug fashion, Lynch states ProPublica's methodology doesn't jibe with actuarial science and notes that it's telling that not only are insurers are crying foul, but state insurance regulators, who have a vested interest in prohibiting discriminatory practices.
posted by DrAstroZoom at 12:18 PM on May 10, 2017 [2 favorites]


Yeah, Lynch is presenting a flaming mess, though.

First, he gives an example of why he might see a normal disjuncture between an individual's rates across zip codes, and then just asserts that that must reflect insurer costs. But we're discussing insurance pricing, not costs. That's either a non sequitur or poor argumentation.

Then, he pointedly ignores the systematically higher rates that ProPublica finds in minority areas. He makes no attempt to show that these zip codes actually have higher claims to insurers, when he of all people would have access to favorable data. The hypothetical example is handwaving, since the rate-setting mechanisms are much more complex than just miles, and ProPublica is actually asserting that it's in those mechanisms that a racism-without-racists perpetuates itself.

A more intellectually honest account from Lynch (not that you would expect one, given the world) would provide a proper method for how you could figure out if insurance rates are racist from available data. This is just concern trolling about methods--while he appears to make an atomistic fallacy--in a world where perfect data is not available.
posted by migrantology at 1:41 PM on May 10, 2017 [2 favorites]


It seems notable that both the IL and CA insurance regulators dispute the validity of the study. It was admirable of ProPublica to include their objections, but it would be nice to know what those objections were more precisely.

My biggest (as a statistics n00b) gripe here is that the study simply categorized neighborhoods as "minority" or "non-minority" based a single threshold value. I would find it a lot more convincing if they found that the percentage of white people in one of their zip codes predicted insurance premiums, when controlling for claims differences. Or is there a sound statistical reason for the split?
posted by andrewpcone at 2:17 PM on May 10, 2017


state insurance regulators, who have a vested interest in prohibiting discriminatory practices.

I haven't quite been able to puzzle out the underlying dispute yet, but...This should not be taken for granted. Regulators do not actually have a "vested interest" in regulating. They have the power to do so. There are many circumstances when it is against their interests, or their perceived interests, to do so. If you don't believe me, check back in about a year about the kind of regulatory enforcement the Trump-appointee-headed agencies are doing.

A state regulator's action against private industry may be a good indicator that something is amiss; a state regulator's inaction can mean many, many things.
posted by praemunire at 2:49 PM on May 10, 2017 [4 favorites]


Back when insurers used solely zip codes, I didn't see this when I was living in a majority minority neighborhood. My insurance cost actually went down at the time, but then it went down again when I moved across town. I always assumed it was due to
being insured for a much longer time by then.

I would be highly surprised if insurers aren't using census block level data nowadays. The insurance situation has been far more complex for me lately (huge auto discounts due to multi-line discounts), so I can't make comparisons. And now I don't have a car, so no auto insurance at all. That's really going to suck when I move somewhere that I'll need a car.
posted by wierdo at 3:04 PM on May 10, 2017


I would be highly surprised if insurers aren't using census block level data nowadays

I remember when the added credit history to the rating algorithm. At that point it was like, "Fuck you, bottom 40% of the population"
posted by mikelieman at 3:08 PM on May 10, 2017 [1 favorite]


My insurance cost actually went down at the time, but then it went down again when I moved across town. I always assumed it was due to being insured for a much longer time by then.

Aging plus vehicle depreciation mean we can't really rely on anecdotal evidence, because the default for premiums is to decline over time.
posted by pwnguin at 3:47 PM on May 10, 2017


Years ago, I worked at a hedge fund, and my manager astutely explained one thing about wages:

You don't get what you're worth. You don't get what you've earned. You don't get what value you add.

You get what you can negotiate.

I thought it was a particularly astute explanation for just about any context where a price is set in an illiquid market. And an important explanation for a lot of things. Why are women paid less? Why are African Americans paid less? Because as a statistical cohort, the median woman or African American shows up at the hiring manager's desk with less negotiating leverage than the median white man, for reasons that MeFites can and do discuss at great length. Show up with a lower BATNA [0], come out with a lower offer.

So, why do auto insurers charge higher premiums to residents of minority neighborhoods?

Because residents of minority neighborhoods pay them, again, for reasons MeFites can and do discuss at great length.

The reason I'm pointing this out is that these inequitable outcomes are generally NOT the result of any attempt to mistreat or discriminate against minorities. The actuaries who set the premiums stare all day at spreadsheets and R scripts that probably have no columns to mark minority areas or insurance applicants. They maximize the margin between premiums and payouts because it's their job to do so, not because they're consciously or unconsciously racist.

So what's the answer? One answer is enough antitrust action to bring back a competitive market.

[0] "Best Alternative To a Negotiated Agreement"
posted by ocschwar at 7:45 PM on May 10, 2017 [1 favorite]


Credit rating is a reliable predictor of claims activity. Excluding it from underwriting makes people with good credit pay more for insurance than their actual risk, just as excluding any identifiable risk factor makes the price of insurance wrong.
posted by MattD at 7:46 PM on May 10, 2017 [1 favorite]


Credit rating is a reliable predictor of claims activity.

Is it also a predictor of not being able to buy as reliable a car, living in a neighborhood with a lower police presence so you're more likely to have your car vandalized, driving on substandard infrastructure that damages your car more, or a host of other things that are also the result of generations of discrimination?

Excluding it from underwriting makes people with good credit pay more for insurance than their actual risk, just as excluding any identifiable risk factor makes the price of insurance wrong.

Well, it ain't 40 acres and a mule, but I figure I can probably stand to pay a little more for car insurance if it means there's a tadbit less fucking redlining in the world.
posted by Etrigan at 7:58 PM on May 10, 2017 [7 favorites]


The reason I'm pointing this out is that these inequitable outcomes are generally NOT the result of any attempt to mistreat or discriminate against minorities.

Charging more than the actuarially sound rate for insurance, if they are, is a direct and conscious attempt to mistreat and discriminate against.
posted by ROU_Xenophobe at 7:59 PM on May 10, 2017


Charging more than the actuarially sound rate for insurance, if they are, is a direct and conscious attempt to mistreat and discriminate against.


In a competitive market, charging more than the actuarially sound rate for insurance is a simple way to get customers to go get insured somewhere else. So you don't do that.

In a non-competitive market, i.e. today's oligopolistic market in the United States, charging more than the actuarially sound rate is how you maximize your profits. If your spreadsheet tells you that people in a particular census tract will pay more, you charge them more. Even if you don't even live in the same continent, and have no idea why they're willing to do that. They are. So you charge them accordingly.
posted by ocschwar at 8:03 PM on May 10, 2017


Nationalize car insurance.
posted by bracems at 8:30 PM on May 10, 2017 [1 favorite]


In a non-competitive market, i.e. today's oligopolistic market in the United States, charging more than the actuarially sound rate is how you maximize your profits.

And, probably, violate state law.
posted by ROU_Xenophobe at 8:49 PM on May 10, 2017


In a non-competitive market, i.e. today's oligopolistic market in the United States, charging more than the actuarially sound rate is how you maximize your profits.

Except that the combined ratios of the industry are nearly 100%
posted by JPD at 8:53 PM on May 10, 2017 [1 favorite]


bracems: "Nationalize car insurance."

This is how it is in BC, it's great. There are very few regions in the province (like I think 11) that you are split into for risk assessment so these sorts of zip code level divisions don't/can't exist. Also not taken into account: credit rating, sex, age (though indirectly older drivers get a discount because there is a progressive discount for continuous claim free years) (and BC has a graduated licensing system that reduces the exposure of new drivers), race, gender, martial status, or car colour.

Also no one gets a discount for being buddies with an underwriter.
posted by Mitheral at 9:26 PM on May 10, 2017


The reason I'm pointing this out is that these inequitable outcomes are generally NOT the result of any attempt to mistreat or discriminate against minorities.

Assuming a perfectly spherical cow...

I'm assuming that you're merely unaware of the deliberately racist policies of the insurance industries in the twentieth century (e.g.) and not that you believe that these attitudes have just vanished into thin air.
posted by praemunire at 10:39 PM on May 10, 2017 [1 favorite]


Aging plus vehicle depreciation mean we can't really rely on anecdotal evidence, because the default for premiums is to decline over time.

Not so much for liability coverage when fleet average age is declining and fleet average value rising, as it was at the time. The point about anecdotal "evidence" in general is fair enough, however.
posted by wierdo at 3:11 AM on May 11, 2017


Credit rating is a reliable predictor of claims activity.

The Comprehensive Loss Underwriting Exchange (CLUE) Report does it even better, so I've never been sold on this, BUT it did let insurers change their premiums without filing new rates with the State Insurance Department, which came in handy when they took over the non-standard market.
posted by mikelieman at 4:43 AM on May 11, 2017


Except that the combined ratios of the industry are nearly 100%.


Actually, seven of the top 10 auto insurers had combined ratios above 100% in 2015, and IIRC, the 2016 numbers were just as bad if not worse.
posted by DrAstroZoom at 6:33 AM on May 11, 2017


They were worse because severity started to tick up iirc
posted by JPD at 4:38 PM on May 11, 2017


We should keep in mind, though, that insurers losing money overall in no way means there isn't a subset of the population being ratfucked. Besides which, without evidence to the contrary, I'm fairly comfortable assuming that insurers are more than making up their losses on auto coverage with profits on other lines. I've personally been the recipient of some ridiculously large auto discounts thanks to multi-line discounts that only apply to the auto premiums, bringing them to levels that seem unsustainable on their own. Like one fairly small claim wiping out a decade plus of premium payments unsustainable.
posted by wierdo at 9:14 PM on May 13, 2017


« Older I Cast "Fomend’s Beating Sphere"   |   Looking up from inside the bucket Newer »


This thread has been archived and is closed to new comments