When auto insurance becomes a social-justice question

Car insurance costs notably more in predominantly African-American neighborhoods, studies conclude. In Detroit, the mayor and citizens seek a fix for sky-high premiums.

On a recent Friday morning Diana Jordan was on her way to the hospital, driving an elderly friend who had fallen and hurt her leg, but she still stopped for a few minutes at Uncle Rob’s Auto Repair, on Seven Mile Road in northeast Detroit. A brake light in her 1998 Pontiac Bonneville was out, and Jordan was wary of getting pulled over and fined. She told the Monitor she hasn’t had a traffic ticket in decades.

Ms. Jordan is 61 and black. For nearly 30 years she worked as a certified nursing assistant. Now she still volunteers as a caregiver but lives off a small fixed income, and needs the Bonneville to get around – even if it’s had engine problems and the minimum liability-only insurance costs her $1,600 annually. “That’s the only thing you can afford,” she says. “Especially when you’re on a budget.”

Jordan lives on Seven Mile Road. If she lived just a mile north – in largely white Macomb County instead of largely black Detroit – she knows her premiums would likely be lower. “You stay across Eight Mile,” she says, “you get cheap insurance. You stay on this side of town, your insurance is high.”   

Car-insurance premiums vary based on many factors, from age and driving history to local traffic patterns. But consumer research has concluded that, nationwide, drivers in predominantly black neighborhoods are consistently charged more than comparable drivers in predominantly white areas. Insurance companies have long maintained that those differences can be attributed to geographic risk. But other experts and advocates disagree, and say that until states do a better job of ensuring fair pricing, millions of Americans will continue to suffer from what appears to be broad economic discrimination.

“We’re not saying they necessarily tried to discriminate against minorities or blacks,” J. Robert Hunter, director of insurance for the nonprofit Consumer Federation of America, says of the pricing. “But that was what happened.”

While the problem is national in scope, the challenge is especially acute in the Motor City, where the last Census counted 83 percent of residents as black and where full insurance coverage can easily run double or triple what Jordan pays on her Bonneville. Insurance prices amount to a city-wide crisis that Detroit’s mayor is pushing to resolve.

‘It’s not right’

Today every state except New Hampshire has some kind of liability insurance requirement. Laws have long prohibited “redlining,” unfairly charging residents of certain areas. But analysts say that, whether intentionally or not, insurance-company pricing algorithms produces the same effect, in part by incorporating factors such as education level or and credit scores.

Mr. Hunter says a driver’s credit score, in particular, often has a bigger impact on his or her rate than driving history. “A rich person with a DUI pays less than a poor person that’s clean,” he says. “It’s not right.”  

In a November 2015 study, the Consumer Federation of America compared liability-only premiums – the basic insurance that covers other drivers' bodily injury and property damage – around the country, controlling for an area’s population density and income levels as a proxy for area traffic patterns: In largely black ZIP codes premiums for a single good driver averaged 70 percent higher than they did in otherwise similar largely white ZIP codes.

In April, a new study from ProPublica and Consumer Reports, this time comparing liability-only premiums against actual amounts paid out by insurance companies in neighborhoods throughout California, Illinois, Missouri, and Texas (the only four states where the data is available) found that in some cases companies charged premiums that were 30 percent higher in largely minority ZIP codes than in white ZIP codes with similar accident costs. In Illinois, 33 of 34 companies charged rates that were at least 10 percent higher in minority communities.  

The insurance industry has long pushed back against any claims of wrongdoing, emphasizing that insurers don’t collect racial information and that pricing is highly nuanced. James Lynch, chief actuary with the trade group Insurance Information Institute, accuses the ProPublica authors of flawed methodology.

“What is more likely,” he says in an interview, “that all of the nation’s insurance companies are somehow in cahoots to discriminate against African Americans for no discernible reason, and they have explicit or implicit approval by the state insurance departments...or is it more likely that these studies are not thorough enough to capture what’s going on?”

Researchers admit that studies have been imperfect, but say industry lobbyists have consistently blocked efforts that would lead to more transparency. “The basic argument” from insurance companies, Hunter says, “is ‘you guys aren’t doing perfect research.’ And our response is, ‘Give us the data and we’ll be happy to.’ ”

Full coverage ... at $5,000 a year?

In Detroit, one 2015 CarInsurance.com analysis determined an average annual full coverage premium of more than $5,000 in several Detroit zip codes for a hypothetical 40-year-old. And a 2014 NerdWallet analysis, looking at comprehensive coverage for a hypothetical 26-year-old, found an average annual rate of $10,700.

Both analyses ranked Detroit’s premiums as easily the highest in the country. In a city where most residents are poor and public transportation is widely considered to be abysmal, insurance is a problem that “forces residents to make decisions that they should not have to make,” says DaRell Reed, a Detroit pastor. Often that means choosing between immobility or risking arrest: An estimated half or more of the city’s drivers don’t have valid insurance.

One resident, Courtney Moore, a casino worker, told the Monitor she pays $326 monthly for basic coverage for her 2004 PT Cruiser. Roscoe Franks said he pays over $500 a month for basic coverage for two cars. Tim Jenkins, a retired factory worker who’s lived in the city for 45 years, said he pays $30 a month for his 1990 Chevy van – because it’s registered at his brother’s address in Mississippi. It’s a typical workaround. “I’ve heard of some people here going to Ohio and getting insurance,” Jenkins says.

The sky-high costs are due in large part to state laws: Michigan is one of 12 states that mandates no-fault coverage, where insurance companies are liable for certain damages regardless of who caused a collision, and it’s the only state that mandates insurance companies provide unlimited lifetime medical coverage. But rates in Detroit are still much higher than elsewhere in the state.

Quest for fixes, Detroit and nationwide

Detroit’s mayor, Mike Duggan, has called the prices “devastating” for the city and was elected in 2014 partly on a promise of bringing relief through the creation of a new city-run plan for residents. The idea, called “D-Insurance”, ultimately stalled in the state legislature, but recently Duggan announced a new effort to work with state lawmakers.  

“A whole lot of people are moving out of the neighborhoods because they can’t afford car insurance,” he told the Detroit Free Press. “It’s almost as much as a housing payment.”

Pastor Reed is also part of a new coalition of city leaders, called the Detroit Alliance for Fair Auto Insurance. The group says it’s not trying to dismantle Michigan’s no-fault law, but aims to eliminate redlining and the use of socioeconomic factors in rate-setting.

Advocates say similar reforms are needed nationwide. California, Massachusetts, and Hawaii already prohibit insurers from using credit scores and limit other socioeconomic factors. Similar bills were also recently proposed in Delaware, Maryland, and Montana.  

In California, which passed a landmark auto-insurance law in 1988, Hunter said the reforms have mostly worked. “There’s a whole system in place to make sure that rates are fair.”

In Detroit, the mayor and other leaders have started referring to auto insurance as a civil rights issue. “Detroiters feel like they’re held hostage when it comes down to car insurance,” says Reed. “We need this done.”