This story was co-published with Consumer Reports.
California regulators said they have required Nationwide and USAA to adjust their auto insurance rates as a result of a report by ProPublica and Consumer Reports
that many minority neighborhoods were paying more than white areas with the same risk.
The regulators said their review confirmed our finding that linked the pricing disparities to incorrect applications of a provision in California law. The statute allows insurers to cluster neighboring zip codes together into a single rating territory.
“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. Nationwide and USAA are two of the 10 largest auto insurance providers in the country by market share.
The department said that the adjustments would largely erase the racial disparities we found in the two companies’ pricing. According to our analysis, USAA charged 18 percent more on average, and Nationwide 14 percent more, in poor, minority neighborhoods than in whiter neighborhoods with similarly high accident costs. Allen said it’s not possible to quantify how these adjustments would affect customers’ premiums because the revisions are too complex. In addition, they’re taking effect at the same time as an overall rate increase.
Allen said the department is now requiring more justification from insurers for their measurements of risk in the poor, minority neighborhoods that California designates as “underserved” for auto coverage.
California’s action marks 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. Insurers have traditionally defended their pricing by saying that the risk is greater in those neighborhoods, even for motorists who have never had an accident.
The department’s investigation was prompted by a ProPublica and Consumer Reports analysis published in April of car insurance premiums
in California, Texas, Missouri and Illinois. ProPublica found that some major insurers were charging minority neighborhoods rates as much as 30 percent more than in other areas with similar accident costs.
The disparities were not as widespread in California, which is a highly regulated insurance market, as in the other states. Even so, within California, we found that units of Nationwide, USAA and Liberty Mutual were charging prices in risky minority neighborhoods that were more than 10 percent above similar risky zip codes where more residents were white.
California regulators said they approved rate increases from Nationwide and USAA last week that contained corrections to the disparities revealed by ProPublica. The regulators said they are still investigating the proposed rates of Liberty Mutual, which had the largest disparities in ProPublica’s analysis. Liberty Mutual spokesman Glenn Greenberg said the company is cooperating with the investigation.
The rate changes will only affect premiums charged from now on. The insurance commission chose not to look into whether, or the extent to which, drivers in California’s underserved neighborhoods may have been mischarged in the past.
Department spokeswoman Nancy Kincaid said there was no need to examine past rates. “After hundreds of hours of additional analysis, department actuaries and analysts did not find any indication the ProPublica analysis revealed valid legal issues,” she said.
Some consumer advocates disagreed with this approach. “We think the commissioner should go back and seek refunds for people who were covertly overcharged by the discriminatory practices that ProPublica uncovered,” said Harvey Rosenfield, founder of Consumer Watchdog. Consumers Union, the policy and action arm of Consumer Reports, has also sent a letter
to the department, urging it to… Continue Reading