State Action Prompted by ProPublica Report
Following a ProPublica and Consumer Reports expose into rate disparities, California regulators will require Nationwide and USAA to adjust car insurance rates for minority neighborhoods.
The April 5, 2017 report examined more than 100,000 premiums charged for liability insurance. The report showed insurance companies charging customers in minority neighborhoods more for car insurance than customers in predominantly white neighborhoods with equivalent risk levels. ProPublica and Consumer Reports analysts examined insurance rates and payouts in California, Illinois, Texas and Missouri. They found disparities between white and minority neighborhoods wider than what risk differences could explain.
“In some cases, insurers such as Allstate, Geico and Liberty Mutual were charging premiums that were on average 30 percent higher in zip codes where most residents are minorities than in whiter neighborhoods with similar accident costs,” ProPublica’s report states.
California regulators later confirmed ProPublica’s September 2017 findings, after the California Department of Insurance first criticized their approach.
“The study’s flawed methodology results in a flawed conclusion” that some insurers discriminate in setting rates, the department said in response to the April 2017 report.
Nevertheless, they later confirmed the report’s findings and ordered Nationwide and USAA to adjust their rates.
“The companies were making some subjective determinations,” as a basis for calculating rates in some zip codes, said Ken Allen, deputy commissioner of the rate regulation branch of the California Department of Insurance.
ProPublica found USAA charged customers in minority neighborhoods 18% more on average than customers in predominantly white neighborhoods with equivalent risk factors, while Nationwide charged 14% more. Allen said the state-mandated adjustments would “largely erase” the disparities.
Allen did not quantify how the adjustments would affect individual customers’ premiums, saying the revisions are too complex. The adjustments are also occurring alongside an overall rate increase.
He said the department now requires insurance companies justify measurements of risk in poor, minority neighborhoods California designates as underserved for car insurance coverage.
ProPublica called the state’s actions “a rare regulatory rebuke of the insurance industry for its longtime practice of charging higher premiums to drivers living in predominantly minority-urban neighborhoods than to drivers with similar safety records living in majority-white neighborhoods.”
California state officials told ProPublica they approved new rates from USAA and Nationwide correcting the disparities, and they are still investigating disparities found in Liberty Mutual’s rates. ProPublica found Liberty Mutual charged minority neighborhood residents on average 30 percent more than they charged residents of mostly white areas.
Liberty Mutual spokesman Glenn Greenberg told ProPublica the company is cooperating with the state’s investigation.
Please consider adding lemonlawusa.org to your bookmarks or sign up for their free subscription service allowing you to keep up with the latest information about automotive recalls, warranty information and lemon law.