Nationwide Insurance and USAA are required by California to adjust rates for auto insurance. The request was caused by a report form ProPublica and Consumer Reports. According to that report, several minority neighborhoods paid more for their car insurance than those in predominately white neighborhoods with the same risk factors.
Insurance regulators confirmed price differences are linked to incorrect usage of a California law provision. The provision allows insurance companies to put several neighborhoods in the same area into one rating territory. The two insurers affected, Nationwide and USAA, are numbered in the top ten largest providers by market share in the United States. The proposed adjustments to rates will greatly reduce racial inequalities in the two providers pricing.
The analysis from Consumer Reports showed USAA pricing was 18% higher on the average. Nationwide had a 14% higher rate. These rates were higher in economically challenged, minority areas than in neighborhoods with more white people but the same high accident costs. According to the California Department of Insurance, it is impossible to quantify how adjustments will affect insured’s premiums. Revisions are just too complex. Making it even harder, these revisions are happening at the same time as a general rate increase. Insurers are now required to show more justification for their measure of risk in underprivileged, minority neighborhoods. California designates these areas as underserved in the auto coverage industry.
This unfair practice of charging poor, minorities more is no secret. In fact, it is something auto insurers have tried to defend, saying people in those areas cost more to insure. Even if a driver in that neighborhood has never had an accident. California’s actions against this practice are rare. The initial investigation by ProPublica and Consumer Reports was a study of insurance premiums in Texas, Illinois, Missouri and California. It was found that some insurers in the top ten major companies were charging as much as 30% more in minority, disadvantaged areas. While the differences were not as widespread in California, it was found that USAA, Liberty Mutual and Nationwide were all charging at least 10% higher in similar hazardous zip codes where a white population resided. Rate increases for Nationwide and USAA were approved in Early September 2017 that included corrections to the price differences among counties. Liberty Mutual has proposed rates that are still being investigated. They had the largest differences in the study. They are cooperating with the investigation.
The approved rate changes will affect only future premiums. Past rates and disparages were not considered. Many consumer rights groups, such as Consumer Watchdog, are upset about this, saying they feel refunds should be issued to consumers targeted in this price rate hike. Missouri, Teas and Illinois insurance commissions have made no comment on if they will take any actions addressing the rate differences. The only word so far, is that Illinois suggests their citizens shop around for the best prices for their insurance.