Two Illinois state senators want to stop car insurers from charging higher premiums to people who live in predominantly minority neighborhoods, a bias that was revealed in a ProPublica-Consumer Reports investigation earlier this month.
The first-of-its-kind analysis, which focused on Illinois and three other states, revealed pricing disparities among car insurance premiums paid by customers based on their ZIP codes.
In some cases, residents in predominantly minority neighborhoods of Chicago paid as much as 30 percent more in premiums than residents in mostly white neighborhoods — a disparity for which differences in risk could not account.
The report noted that the overpricing “may amount to a subtler form of redlining” by the industry, a reference to the denial of services to minority neighborhoods.
“As a mathematician, as a lawmaker and as a person who fights for equality, I am deeply troubled by the questions that were raised in this investigation,” said state Senator Daniel Biss, an Evanston Democrat. “The types of across-the-board disparities described in the report don’t occur by accident. There clearly is a systemic problem that needs to be addressed by the insurance industry and by the government on behalf of consumers.”
Biss and state Senator Jacqueline Y. Collins, a Chicago Democrat, will introduce legislation that prohibits insurers from using a person’s ZIP code as grounds for determining premium rates.
Collins and Biss will amend Senate Bill 1706, which is Collins’ pending legislation to bar insurance companies from using a person’s credit rating to determine how much they should pay for car insurance premiums, a practice that is considered discriminatory to minority and low-income populations, but is legal in Illinois.
“This is a pattern of discrimination all too familiar to people of color at every level of modern life,” Collins said. “A fair market demands a level playing field. Stories like this remind us that this requires investigation and regulation. I want to applaud the journalists who brought these unfair practices to light and to commend Senator Biss for helping to strengthen this legislation.”
The ProPublica-Consumer Reports analysis examined more than 100,000 premiums charged for liability insurance in each of the states studied. The analysis was limited to one type of customer: a 30-year-old woman with a safe driving record. Their premiums were compared to the average amounts paid out by insurers for liability claims in each ZIP code.
The findings were alarming. Of the 34 companies analyzed in Illinois, 33 charged at least 10 percent higher premiums on average for the same safe driver in minority ZIP codes than in comparably risky white ZIP codes. Six Illinois insurers had average disparities higher than 30 percent, according to the analysis.
Dory Rand, president of the Chicago-based Woodstock Institute, a nonpartisan policy and research organization focused on fair lending, wealth creation and financial systems reform, said such practices can pose significant financial challenges for people already struggling to get by.
“Auto insurance price optimization schemes discriminate against workers of color and impair workers’ economic security by making it more difficult for them to get to work and to meet other expenses,” Rand said.
“Woodstock Institute applauds the ProPublica investigation and the efforts of Senators Biss and Collins and their colleagues in the Illinois General Assembly to bring fairness to auto insurance pricing.”
Critics of the investigation said it was incomplete and oversimplified the way insurance companies set their rates.
