California Finds Affinity Group Auto Insurance Discounts Favor Higher Income Drivers

California insurance regulators released data showing what the CDI is calling “wide socioeconomic disparities” in auto insurance group discounts offered to millions of California drivers.

The California Department of Insurance says some insurers offer lower automobile premium pricing to certain “affinity groups” including white-collar occupations and highly skilled workers, according to CDI data, which shows that one-quarter of Californians receive an affinity group premium reduction ranging from 1.5% to 25.9% depending on the insurer and group.

The investigation illustrates that the current discount scheme disproportionately and adversely affect drivers residing in ZIP codes with lower per capita incomes, lower levels of educational attainment, and larger communities of color.

Insurance Commissioner Ricardo Lara called the new data “disturbing” after the first affinity group fact-finding hearing in the CDI’s history last week in Los Angeles.

“This disturbing data confirms what we have heard for years, that auto group discounts do not apply equally across California,” said Insurance Commissioner Ricardo Lara. “We are evaluating whether insurer affinity group discounts violate state laws, and I am prepared to act to ensure all Californians have access to affordable auto insurance regardless of their income, education, or ethnicity.”

The insurance industry says it does not control what affinity groups are formed.

“It must be made clear that affinity groups are created by consumers not insurers. California law only allows for the creation of consumer-initiated affinity groups. Insurers are explicitly prohibited from creating these groups,” said Mark Sektnan, vice president for the American Property Casualty Insurance Association, in response to the investigation. “Over the last 30 years, a wide range of organizations have formed and benefited from affinity groups including labor unions, teachers, small business owners and their employees, law enforcement, among hundreds of others.”

Sektnan in his statement argued that if affinity groups are restricted, millions of California drivers already in these programs could be forced to pay more for auto insurance, but if changes are to be made, more affinity groups should be created to encourage greater access.

Among the findings released by the CDI:

Customers in surveyed affinity groups tend to be in higher income ZIP codes. Only 26% of Californians in the lowest-earning areas ($22,516 per capita and below) receive group discounts, compared to 55% in the highest-earning areas ($49,070 per capita and above).

Those in affinity groups that were surveyed are more likely to reside in ZIP codes with a higher average educational attainment. Only 28% of those living in areas with the lowest number of college degrees receive discounts, compared to 56% for those where half or more have college degrees.

Those in affinity groups are more likely to reside in ZIP codes with a predominantly non-Hispanic white population. 47% of persons living in ZIP codes with a large non-Hispanic white population (62% or greater) receive an affinity group discount. Only 29% of those in heavily minority areas (greater than 83%) receive discounts.

Three-quarters of those in underserved communities are not in an affinity group, compared to 57% for the rest of the state.