Landmark Washington Report on Unintentional Bias Finds Racial Premium Gap in Auto Insurance Pricing in Washington D.C.

Washington, D.C.-In a newly released report on auto insurance, the District of Columbia Department of Insurance, Securities, and Banking (DISB) found significantly higher premiums charged to Black and Hispanic drivers than to white drivers in the District. The study found that, on average, Black drivers pay 46% more than white drivers and Hispanic drivers pay 20% more.

"This report should spur changes in the District to prevent the marketplace unfairness that the study found," said Douglas Heller, Director of Insurance for the Consumer Federation of America (CFA). "The District requires that all drivers carry insurance, and it has a special obligation to make sure industry pricing is reformed to end this racial premium gap."

In its review, the Department collected data on auto insurance premiums in the District and used demographic information and demographic techniques to evaluate pricing by race and ethnicity. The analysis found that white drivers paid an average annual premium of $705, Asian drivers paid an average premium of $722, Hispanic drivers paid $849, and Black drivers paid $1,031-a $326 increase compared to white drivers.

"The price setting algorithms of insurance companies are broken, and people of color are paying the price," said Michael DeLong, CFA's Research and Advocacy Associate. "Insurers use a range of non-driving factors, such as a customer's credit score, their job title, and even whether they went to college, to determine how much a driver pays. Companies should never be allowed to punish people because of their socioeconomic status, and especially not when the product is mandated by the government."

The Department looked at possible factors that could legitimately explain the premium hikes, such as someone's age, driving record, claims history, and the type of insurance policy. But even after accounting for those elements, there were still large gaps between what different groups of drivers pay for coverage, with Black consumers paying much higher premiums.

According to CFA, one of the likeliest drivers of the price disparities stems from auto insurance companies' use of consumer credit history for premium setting. A 2023 report by the Consumer Federation of America found that in the District of Columbia, drivers with excellent credit paid an average premium of $557. But drivers with fair credit paid an average premium of $854, and drivers with poor credit paid a premium of $1,306-a 234% increase compared to drivers with excellent credit. Data show that Black and Hispanic consumers have lower credit scores on average than white consumers, and therefore will have higher auto insurance premiums when credit history is considered.

In a 2017 study from the Federal Insurance Office, the Office found that 35% of District residents live in ZIP Codes where auto insurance was deemed unaffordable.