California Insurers Charge Drivers in Black, Latino Neighborhoods More, Report Indicates

Insurers charge good drivers living in California’s predominantly African-American and Latino zip codes substantially more for automobile insurance than good drivers in predominantly white communities, claims an analysis by Consumers Union, the non-profit publisher of Consumer Reports magazine. In some majority African-American communities, one major insurer charges good drivers an average $974 or 83 percent more for auto insurance than non minority communities, the report indicated.

“Insurers are penalizing many African Americans and Latinos with good driving records by charging them higher rates just because of their zip code,” said Mark Savage, senior attorney for Consumers Union. “These disparities are due to discriminatory insurance regulations that allow insurers to base their rates primarily on where drivers live, instead of how well they drive.”

However, the Association of California Insurance Companies called Consumer Union’s report on auto rating factors “incomplete and irresponsible.”

“Insurers use several factors to develop rates that are based on a driver’s risk of having a loss. This way one group of policyholders does not subsidize another group,” said Sam Sorich, ACIC president.

According to Consumers Union, it found that California’s three largest insurers (State Farm, Farmers and Allstate) charged a female driver with a perfect record and 22 years of experience an average $152 or 12.9 percent more in predominantly Latino zip codes, and $704 or 59.7 percent more in predominantly African-American zip codes, than in predominantly non-Hispanic white zip codes.

Farmers’ insurance rates in the adjacent Los Angeles zip codes of Westchester (90045), Baldwin Hills (90056), and Inglewood (90301) illustrated the discrimination, Consumers Union said. Drivers in the predominantly African-American and Latino communities of Baldwin Hills and Inglewood pay $951 and $899 more for insurance than the same good driver pays in predominantly non-Hispanic white Westchester. Similarly, in the majority Latino 95205 zip code in Stockton, good drivers pay $252 more per year than drivers in the adjacent and largely non-Hispanic white 95204 zip code in Stockton, the report said.

Yet ACIC’s Sorich said one of the factors used in determining rates is territory, or where the insured vehicle is garaged. “It is a known fact that the risk of having an accident is greater in urbanized areas of the state that experience heavy traffic congestion,” he said. “A good driver driving rural roads, for example, is less likely to have an accident than another good driver traveling the same number of miles in a major urban area.

“Insurers, when establishing rates, do not know the racial makeup of their policyholders,” Sorich continued. “Insurers never receive information about their customers’ race, ethnicity, religion or income. It is irresponsible, therefore, to charge that insurers establish rates based on race. It is equally absurd to think that the insurance commissioner would approve rates based on race.”

Two years ago in townhall meetings across California, drivers in low-income and minority communities complained to Garamendi that they were being charged more for automobile insurance because of the zip code in which they lived, Savage said.

Proposition 103, which was enacted by voters in 1988, requires that automobile insurance premiums be based on three mandatory factors: driving record, miles driven and years of driving experience. However, a deceptive loophole in regulations adopted by former Insurance Commissioner Chuck Quackenbush in 1996 has allowed insurers to base automobile insurance premiums primarily on where one lives, not how well one drives, Consumers Union said.

“Until Insurance Commissioner John Garamendi fixes the system, there will remain a discriminatory racial component in California’s auto insurance rates that voters tried to get rid of in 1988 with Proposition 103,” Savage said.

Consumers Union’s used data from insurer filings with the Department of Insurance to analyze premiums charged by State Farm, Farmers, and Allstate to a woman driving 22 years with no accidents or tickets, who uses her 1996 Acura primarily to drive to work. The study used this driver profile throughout, and calculated premiums changing only her zip code.

Consumers Union then cross-referenced insurers’ premium data by zip code with census 2000 data by zip code. The organization said this enabled it to analyze the average premiums charged good drivers in predominantly non-Hispanic white zip codes, predominantly Latino zip codes and predominantly African-American zip codes.

Nearly two and one-half years ago, Consumers Union and other organizations and cities petitioned Garamendi to amend the regulation and require that one’s driving safety record, annual mileage, and years of driving experience each have greater in determining one’s auto premium than any other factor such as zip code, gender or marital status. On June 25, 2003, Garamendi granted the petition.

“We intend to review Commissioner Garamendi’s proposed regulation carefully to determine whether it redresses this discrimination and ensures that premiums are based primarily on how one drives just as voters intended when they approved Proposition 103,” Savage said.

In addition to Consumers Union, the other petitioners are the National Council of La Raza, Southern Christian Leadership Conference of Greater Los Angeles, Spanish Speaking Citizens’ Foundation, Foundation for Taxpayer and Consumer Rights, City of Los Angeles, City of Oakland, and City and County of San Francisco.