California Department of Insurance Investigation Finds USAA & Nationwide Calculated Auto Rates Incorrectly, Resulting in Higher Rates in Minority Neighborhoods

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Investigation Confirms Findings of Consumer Reports & ProPublica Analysis; Consumers Union Urges CDI to Hold Companies Accountable If Drivers Were Charged Improper Rates In The Past

The California Department of Insurance announced today that an investigation by the agency determined that Nationwide and USAA had submitted rate plans for the upcoming rate period that calculated auto premiums improperly, resulting in higher rates for drivers in minority communities. The Department has required the companies to submit new rate plans to ensure drivers living in predominantly minority zip codes are not charged higher premiums than drivers in white neighborhoods with comparable risk.

The Department’s investigation was prompted by an analysis released earlier this year by Consumer Reports and ProPublica, which found that eight insurance companies were charging minority zip codes in California more than 10 percent higher premiums on average than non-minority zip codes with similar levels of risk.

According to a story posted today by Consumer Reports and ProPublica and written by ProPublica’s Julia Angwin and Jeff Larson, “The regulators said their review confirmed our finding that linked pricing disparities to incorrect applications of a provision of the law….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.”

The regulators indicated that they were still investigating the proposed rates of Liberty Mutual, which had the largest disparities in the ProPublica - Consumer Reports analysis. Consumers Union, the policy and mobilization division of Consumer Reports, praised the Department for working to ensure fair premiums in the future and called on the agency to review past rate filings by the companies to determine whether drivers in minority neighborhoods were charged more than can be explained by risk.

“California deserves credit for investigating this issue and making sure insurance companies are following the law,” said Christina Tetreault, staff attorney for Consumers Union. “Now it should take a closer look at past rate filings and hold companies accountable if drivers in minority neighborhoods were charged more than could be justified by risk.”

The ProPublica - Consumer Reports analysis looked at premium quotes for liability insurance – the combination of bodily injury and property damage coverage that drivers must purchase. These liability premiums were compared to average payouts made by insurers for every zip code in California, Texas, Missouri, and Illinois, the four states that collect and provided the data in response to a public records request by ProPublica.

These states represent the range of government oversight of the insurance industry in the U.S., with California being the most highly regulated insurance market in the country, and Illinois one of the least regulated. In each state, Consumer Reports found a significant gap between the premiums charged in minority and non-minority neighborhoods with the same risk. In some cases, insurers such as Allstate, Geico, and Liberty Mutual charged premiums that were on average 30 percent higher in minority zip codes than in comparable non-minority neighborhoods.

Consumers Union has long opposed the use of non-driving factors for setting auto insurance rates because of the discriminatory impact they can have on premiums. Instead, Consumers Union has urged state insurance commissioners to follow California’s lead by requiring insurers to base their rates primarily on a policyholder’s driving record, miles driven, and years of driving experience.

“Drivers should be charged premiums based on how well they drive, not whether they have a good credit score or a high paying job,” said Christina Tetreault, staff attorney for Consumers Union. “But even in states like California with strong industry oversight, insurers can charge improper rates if they fail to calculate them correctly.”

© 2017 Consumer Reports. The material above is intended for legitimate news entities only; it may not be used for advertising or promotional purposes. Consumer Reports® is an expert, independent, nonprofit organization whose mission is to work side by side with consumers to create a fairer, safer, and healthier world. We accept no advertising and pay for all the products we test. We are not beholden to any commercial interest. Our income is derived from the sale of Consumer Reports® magazine, ConsumerReports.org® and our other publications and information products, services, fees, and noncommercial contributions and grants. Our Ratings and reports are intended solely for the use of our readers. Neither the Ratings nor the reports may be used in advertising or for any other commercial purpose without our prior written permission. Consumer Reports will take all steps open to it to prevent unauthorized commercial use of its content and trademarks.

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