A report released today by the Consumer Federation of America has found that a female driver could pay significantly more for car insurance if she lives in a predominantly African-American community rather than a mostly white one, even when all other factors are equal.  

The CFA study looked at what five of the largest U.S. car insurers would charge a hypothetical 30-year-old single female driver with a fair insurance credit rating for a basic insurance policy providing the minimum required liability coverage. This example consumer was crafted to represent a typical moderate-income driver. Her profile specified that she rents her home, owns a 2000 Honda Civic EX she drives 10,000 miles a year, and has had no accidents or moving violations.

The quotes for this hypothetical driver were priced out in 29,664 U.S. ZIP codes using January 2014 premium data from Allstate, Farmers, Geico, Progressive, and State Farm, collectively. CFA used data from Quadrant Information Services, a private company that collects the premium prices that insurers must file in almost every state.

Of course, no insurance company asks about race or ethnicity when consumers apply for a rate quote, but the companies do adjust prices by location (based on factors such as crime rates, road and weather conditions, congestion, police and fire department response times, and more). The CFA report found that, on average, premium rate quotes for its example driver were 70 percent higher in predominantly African American communities than in communities that are mostly white. 

The study found that on average, premiums were $622 a year in the ZIP codes where the population was less than 25 percent African American, but $1,060 where the population was more than 75 percent African American. Further, across ZIP codes, as the proportion of African American residents increased, so did the cost of the average premium.

The CFA examined whether the pricing pattern might be driven by income and found that it wasn't. The example customer was charged more in mostly black communities vs. mostly white, regardless of the average income for that ZIP code. The study found that in low-income ZIP codes, the driver was charged 77 percent more if the community was predominantly African American as opposed to white. The difference was even greater when upper-middle income neighborhoods were compared: If the community was primarily African American, the driver was charged 194 percent more than if it was mostly white.

"The Consumer Federation of America findings are extremely troubling, given the conversation we’re having as a society about inequality and race, and this begs for a close inspection by regulators and lawmakers to address any unfair inequities immediately," says Norma Garcia, senior attorney and manager of the financial services program at Consumers Union, the policy and advocacy arm of Consumer Reports. 

Garcia will testify before the National Association of Insurance Commissioners on November 19, 2015, to present more than 15,000 reader petitions that demand, "Price me by how I drive, not by who you think I am." Sign up today to get an invitation to Consumer Reports' livestream of the meeting.

The CFA's findings are concerning, although not surprising, given what Consumer Reports recently found in our own investigation into the car insurance industry, published in September 2015. We analyzed more than 2 billion car insurance price quotes from more than 700 companies and found that the insurance industry relies upon a pricing process that judges you less on your driving habits and record, and increasingly on socioeconomic factors.

The CFA's report on racial disparities should put further pressure on state insurance boards to act. "Our report strongly suggests that there is disparate pricing in African American communities all over the country, and we are urging regulators to take a hard look to find out why this is occurring," says Tom Feltner, director of financial services for the Consumer Federation of America.

Urban Risk Doesn't Explain the Difference

Car insurance premiums tend to be higher in urban areas, where traffic congestion and driver distractions are greater. But the CFA study states that it controlled for population density, and found that in the densest African American “urban core” neighborhoods, prices were still 60 percent higher than in white urban core neighborhoods that are just as dense. The study found the quote in an African American neighborhood was $1,797 per year vs. $1,126 per year in a predominantly white neighborhood.

The CFA says its findings cannot be used as evidence of deliberately discriminatory practices, because the research does not attempt to assess the intention behind the pricing patterns, only the impact they have.

But other researchers say that disparities are baked into consumer pricing for car insurance. A 2006 study of car insurance premiums in Los Angeles by UCLA professors Paul Ong and Michael Stoll found that prices were statistically significantly higher in lower income ZIP codes, which are often comprised of higher black and Hispanic populations. The researchers controlled for the differences for accident and stolen vehicle rates and insurer's incurred losses, according to that study.  

"Even after you account for driving record and local risk factors, residents of these disadvantaged areas ended up paying more," says Ong.

Sign our petition to tell insurers, "Price me by how I drive, not by who you think I am." And read our special report, "The Truth About Car Insurance."

California has since changed its regulations to reduce how much insurers can use ZIP codes to determine car insurance premiums. According to the CFA report, auto insurance premiums in the Los Angeles area in mostly black ZIP codes averaged 15 percent higher than rates in mainly white Los Angeles ZIP codes. The report also found that the national average increase is 70 percent higher for car insurance rates in primarily African American ZIP codes versus primarily white ZIP codes.

"I'm impressed by the scope of the CFA report, which is able to show that disparate pricing of car insurance is a pervasive national problem," says Ong. 

The CFA report was just released today, and insurance companies have not yet had an opportunity to respond, but we will be reaching out to them for comment and will update this story when we hear back.

What You Can Do

If you’re concerned about being unfairly overcharged for car insurance, you can take control of the situation and look for a better deal. Here’s how:

  • Shop around. Start with the three insurers that our September 2015 report found to be generally lowest in price: Amica, State Farm, and USAA. (USAA is available to about 60 million people, those who are members of the U.S. military, honorably discharged veterans, and the families of members.) Call or get online quotes directly from the companies. 
  • Dig deeper. Get a wider view of the market by checking prices from at least a dozen companies in your state. Visit thezebra.com, a website that provides customized premium estimates from 18 to 35 insurers per state. This will help you assess whether you have a good deal, or it might come up with an even better one. 
  • Don't forget claims satisfaction. Price is key, but if you suffer a loss, how well your insurer handles the claim is critical. ConsumerReports.org subscribers can our claim satisfaction ratings online.