A new report published by ProPublica accuses the auto insurance industry of pricing discrimination against minorities.
The report, titled Minority Neighborhoods Pay Higher Car Insurance Premiums Than White Areas with the Same Risk, claims insurers overcharge drivers in minority zip codes compared to drivers in other zip codes with similar payouts on claims.
The insurance industry as well as the insurance regulators of California and Illinois have criticized the report, its methodology and conclusions as inaccurate. The industry-backed Insurance Information Institute (III) held a press briefing and penned an in-depth opinion column blasting what it said are serious but unfounded charges of racial bias.
The critics said the study’s fundamental flaw is that it uses one example of a driver with a safe driving record and then assumes that differences in prices can be explained solely by zip code or race when in fact insurers’ algorithms employ multiple factors in rating every driver that could explain the differences.
James Lynch, chief actuary for the I.I.I., accused ProPublica of an “attempt to sensationalize an issue that should only be taken in the most serious of manners” and stressed that state regulators review algorithms used and rates charged so that they are not excessive or unfairly discriminatory.
“Auto insurers ask prospective policyholders many questions during the application process including where they live and what kind of car they drive. The majority of states go so far as to safeguard question about ethnicity from ever being asked during the process. Insurance companies go even further; they never ask about race or income,” Lynch told reporters.
Lynch said ProPublica saw disparities in prices with one driver and then concluded the disparities were based on zip code when in fact they are the result of multiple factors related to the individual driver including location, miles driven and driving history that the research did not take into consideration.
Lynch denied there could be inadvertent discrimination happening. “There is no unfair discrimination, intentional or unintentional,” he said.
Lynch said I.I.I. showed ProPublica an independent actuarial review of its data that disputed ProPublica’s conclusions and methodology but ProPublica ignored it. He said his group is “disappointed in ProPublica’s attempt to sensationalize” an important issue.
ProPublica claims its research shows that Allstate, GEICO, Liberty Mutual and other insurers are in some cases charging premiums averaging 30 percent higher in zip codes where most residents are minorities than they are charging drivers in whiter neighborhoods with similar accident costs.
ProPublica and Consumer Reports examined auto insurance premiums and payouts in California, Illinois, Texas and Missouri, the only four states it says would release geographic data on insurance payouts.
The researchers limited their analysis to results for a 30-year-old woman with a safe driving record and then compared those premiums, which were provided by Quadrant Information Services, to the average amounts paid out by insurers for liability claims in each zip code.
ProPublica said the California Department of Insurance criticized its analysis and conclusions on the grounds that an individual insurer’s losses in a given zip code may vary significantly from the industry average.
ProPublica said the Illinois Department of Insurance also criticized its report’s methodology as incomplete and oversimplified in its comparison of rates in minority vs. non-minority neighborhoods.
ProPublica said many insurers did not respond to its inquiries. Those that did – including Nationwide and USAA — disputed the results and said that they do not discriminate by race in pricing.
This story is part of a series by ProPublica called Machine Bias that is probing the “hidden power” of algorithms used by businesses, government and organizations for everything from identifying top selling products to generating criminal risk scores.
The industry also took a hit earlier this year in a study by the U.S. Treasury Department that found nearly 19 million Americans live in areas where auto insurance is unaffordable. The study, conducted by the department’s Federal Insurance Office (FIO), found that car insurance is generally unaffordable in 845 U.S. areas, as defined by postal codes, that are typically home to minorities and people with low-to-moderate incomes.
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