Rep. Mark Takano, D-Calif., introduced legislation last week requiring federal authorities to examine racial disparities in auto insurance premiums, citing a story co-published by ProPublica and Consumer Reports last April.
The legislation, which has six Democratic co-sponsors, is in part a rebuke to the Trump administration for seeking to shift the mission of the Treasury Department’s Federal Insurance Office from being a watchdog agency tasked with studying auto insurance pricing into an industry booster. The bill calls for the office to collect ZIP-code level claims data from insurers across the nation, and use the information to study whether higher prices in minority neighborhoods are justified by the risk of bigger payouts in those areas.
“The lack of transparency in the auto insurance market makes it impossible to understand and address potential racial disparities,” Takano said in a press release announcing the bill. “This legislation is an important step to determining whether minority drivers are being unjustly overcharged for insurance premiums because of reasons unrelated to risk. Given that auto insurance is a requirement for drivers, and that driving is a necessity for many Americans, there is a strong public interest in studying and addressing discrimination in the auto insurance market.”
The insurance industry responded that there is no need for a federal study. “This [legislation] is a solution in search of a problem,” said David Snyder, a vice president at the Property Casualty Insurers Association of America. “There is no need for this duplicative and costly layer of federal involvement. For more than 150 years, the states have been effective in regulating insurers to protect consumers, foster competitive insurance markets and prevent unfair discrimination.”
ProPublica and Consumer Reports found that some major insurers were charging drivers in minority neighborhoods rates as much as 30 percent more than drivers in other areas with similar accident costs. Even in California’s highly regulated insurance market, units of Nationwide, USAA and Liberty Mutual were charging prices in risky minority neighborhoods that were more than 10 percent above similarly risky zip codes where more residents were white.
Our analysis of premiums and payouts in California, Illinois, Texas and Missouri shows that some major insurers charge minority neighborhoods as much as 30 percent more than other areas with similar accident costs.
Our analysis was limited to the four states — California, Illinois, Texas and Missouri — that collect the information necessary to do such comparisons. The other states said they didn’t have the necessary data. If it is enacted, Takano’s bill would require a report on racial disparities in auto insurance pricing in all states to be completed within two years.
As a result of our report, California regulators required Nationwide and USAA to adjust their auto insurance rates. They said their review confirmed our finding that linked the pricing disparities to incorrect applications of a California law allowing insurers to cluster neighboring ZIP codes into a single rating territory.
The Federal Insurance Office was created in 2010 as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. In the final days of the Obama administration, the office published a preliminary report on affordability in the auto insurance market. It pledged to conduct a more comprehensive study and to ask large insurers to contribute the necessary ZIP-code level data.
However, the insurance office — which has been operating without a permanent director since the beginning of the Trump administration — has not completed such a study. (The office’s longtime deputy director, Steven Seitz, serves as the acting director.) And in an October 2017 report to the White House, the Treasury Department suggested a revised role for the insurance office, focusing on promoting the industry. Its recommendations omitted the office’s original mandate, which required it to protect traditionally underserved communities and consumers.
“The inactivity of the Federal Insurance Office and the Trump administration’s consumer protection office has been extremely frustrating to the Congressman and many Democrats,” said Josh Weisz, a spokesman for Takano. “Seeking to fulfill the basic commitment to collect data seems like the first right step.”
Civil rights groups praised the proposal.
“We see time and again people, especially in communities of color, have trouble finding and keeping mandatory insurance because it is so expensive,” said Sam Brooke, deputy legal director of the Southern Poverty Law Center. “This creates a vicious cycle where, because they cannot afford it, they get additional tickets with mounting fees.”