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Why Minorities Are Overpaying for Auto Insurance (and How to Make a Change)

The injustices minorities face in America today extend far beyond police brutality and mass incarceration. Every day, Black people are also facing challenges that impede their ability to lead successful lives. This is especially true when it comes to finances. Getting unfair wages, missing out on advancement opportunities, and being denied business loans is a part of the issue. However, we also find minorities are faced with other problems, like getting access to affordable auto insurance. 

For example, did you know that auto insurers discriminate against residents who live in specific ZIP codes? One report shows auto insurers charge those living in predominantly Black neighborhoods 30% more than in white communities. And an analysis done in four states (Chicago, California, Texas, and Missouri) found significant gaps between the premiums charged to minority and non-minority neighborhoods. For instance, in Illinois, six auto insurers were found charging an average of 30% more for premiums for Black drivers. 

Systemic racism is an underlying issue in America for minorities. The design is to oppress minorities financially and educationally, as well as within the justice system. Hiking up auto insurance rates is yet another form of this. Not only does it add to financial hardship, but it can also lead to other problems for minorities who can’t afford the high premiums and end up driving without auto insurance. Some may receive tickets, a suspended license, or even jail time. Then, in the future, obtaining auto insurance will be even more expensive for these drivers due to a poor driving record. 

In this article, we explore how these racial disparities in auto insurance rates come about and what minorities can do. 

How Your ZIP Code Impacts Your Rate

It’s not uncommon for insurance companies to use your ZIP code to determine your premium. They do this by looking at factors like:

  • The number of claims in the area (the more, the higher your rate)

  • Population density (the more, the higher your odds of an accident)

  • Environmental/geographical factors (extreme weather like snowstorms can pose driving threats)

  • Unemployment rate (odds of customers losing work and not paying their premium)

  • Road conditions (potholes and dangerous intersections can be treacherous)

Based on these factors, you can see how minority communities can be targeted for higher rates. You’ll find many are impoverished and struggle with poor road conditions, high population densities, and high unemployment. 

But why are insurance companies charging minorities significantly more than non-minorities? Is it truly because of high population density and other similar factors present in prominently Black neighborhoods, or that minorities have worse driving records and pose a higher risk to the auto insurance provider? This would make sense if data didn’t reveal otherwise.

In the report mentioned earlier, we find that in Illinois, 33 out of 34 auto insurers charge at least 10% more for safe drivers in minority ZIP codes than in risky white ZIP codes. In a study by the Consumer Federation of America, it shows that in the densest urban centers, predominantly Black areas are charged 60% more than those in mostly white areas with equal density. It also reveals that good drivers living in minority neighborhoods are being charged a stunning 70% more than those in white ZIP codes. 

Let’s put this in perspective: A white driver with a good driving record is charged $622 compared to $1,060 for a minority driver. 

Here are more facts from the report:

  • Drivers in predominantly Black ZIP codes pay 60% more in premiums than in equally dense, mostly white urban neighborhoods.

  • Drivers in minority communities in rural areas pay 24% more than in white rural ZIP codes. 

  • Major companies like Progressive and Farmer’s Insurance charge those living in predominantly Black ZIP codes 92% more for premiums. Other insurers with similar practices include Allstate (56%), State Farm (62%), and Geico (52%). 

  • In metro areas like New York, Baltimore, Detroit, Washington D.C., Orlando, and Boston, the premiums are 50% higher for predominantly Black ZIP codes. 

And this doesn’t afflict only the poorer minorities either. It gets worse the more income minorities earn. For example, the average premium for upper-middle-income Black neighborhoods is 194% higher. That’s $2,113 for an upper-middle-class Black driver compared to $717 for an upper-middle-class white driver.

“These findings suggest a troubling pattern of high rates in African American communities regardless of driver history,” Tom Feltner, Director of Financial Services at the Consumer Federation of America, said on their website. “We are not rushing to judgment about why this happens, but it is urgent that regulators, lawmakers, and the industry take a hard look at these findings and address the impact of high auto insurance prices on drivers living in predominantly African American communities.”

How Traffic Tickets Factor Into Racial Disparities

What role do traffic tickets play in racial disparity? When it has to do with unfair auto insurance hikes — a lot. According to the Bureau of Justice Statistics, the most common reason for driver-police contact is traffic stops. And when it comes to “driving while Black,” we find a significant disparity in the distribution of traffic tickets. 

Black drivers are almost two times more likely to be pulled over than white drivers (even though white people tend to drive more frequently), and young Black men have even higher odds of being pulled over — more than Black women and older Black men. With this high rate of traffic stops, minority drivers are more likely to receive a ticket for minor traffic infractions than white drivers. 

There are also stories of African Americans being pulled over for no reason and then threatened to be ticketed by the officer if they make an issue of it. This has become a significant concern because cops use traffic stops to find criminals (using search and seizures and warrant checks) instead of focusing on bad drivers. 

Because of the injustices minority drivers face on the roadway, they’re more easily targeted by auto insurers looking to charge higher premium rates. One of the factors insurers look at when you apply for coverage is how many traffic violations you’ve had in the last three years. If you’re given a speeding ticket, it can lead to an average 13% increase in an auto insurance premium. That’s because the insurer believes you’re at a higher risk of getting into an accident. 

Unfortunately, if you’re an African American, then the odds of having been issued one or more speeding tickets are highly likely, which means higher insurance premiums. 

Can Red-Light and Speed Cameras Help?

If being prejudice is a human issue, wouldn’t it make sense to remove humans from the equation to eliminate racism? Well, that’s one reason some are pushing for more traffic cameras. It’s believed that by using red-light and speed cameras, it’s possible to reduce racial-inspired traffic stops, allowing police officers to focus more on serious crimes.

With the use of cameras, rather than minority drivers being targeted by police officers, all drivers would receive tickets in the mail when they run a red light or speed. Of course, if a driver happens to do this in front of an officer, it wouldn’t prevent them from being pulled over.

These cameras are already being used across the nation, although not widely. Roughly 153 jurisdictions in 17 states are currently using speed cameras (up from 111 in 2012). However, a third of them are in Maryland. And, unfortunately, the same adoption rate isn’t seen with red-light cameras. In 2012, there were 556 red-light cameras, and now there are only 340. Another 13 states have either partially or entirely outlawed speed cameras, and another eight states banned red-light cameras. 

There are studies showing speed cameras help to reduce crashes near the cameras, and that red-light cameras decrease the amount of red-light running. And while it’s great that these cameras can improve the way people drive, there’s a more pressing reason to get them — reducing racism in American policing. You know this is an issue when you have a Black U.S. Senator (Tim Scott) admitting to being pulled over seven times annually at the beginning of his political career. In many cases, it was because he was driving a new car in the wrong neighborhood. 

The only time racially-charged traffic stops are lower is at night, and that’s because it’s harder to see who’s driving. This is another reason why installing more traffic cameras can minimize the frequency of racist traffic stops. 

How You Can Help Bridge the Gap

Traffic cameras can significantly help the injustice minorities face with police officers. But there are other ways citizens can seek help with reducing racial disparities in auto insurance pricing. 

One way is to support bills like the one written by U.S. Rep. Mark Takano, D-Calif. This bill requests the federal authorities to investigate racial disparities in auto insurance premiums. This would include the collection of ZIP-code-level claims from around the country to determine whether insurers are overcharging minority communities. And if they are, then determine whether the higher rates are justified (like having a higher risk of bigger payouts in those neighborhoods). 

The proposal received praise from civil rights groups and should receive the support of the public. Although citizens aren’t included in the voting process for bills, you can still support it by writing a letter to your legislators. Be sure to reference the bill name and number in your letter, along with why you support it. Getting family, friends, and others in your community to do the same can help push legislators to vote in your favor. 

Another way to bridge the gap is to only do business with minority-owned insurance providers, or those that aim to eliminate racial biases. Also, reporting clear cases of discrimination against minorities can help build records of incidents that repeatedly occur for particular officers and departments. This way, when they are investigated, there’s mounting evidence of racist policing. 

Even police reform, which is gaining momentum amid the Black Lives Matter movement, can potentially reduce racial profiling during traffic stops. In this case, police departments would be stripped of extra resources, which would, in turn, reduce their contact with the public. As a result, it can minimize the racial profiling of drivers that can lead to auto insurance hikes for minorities. As an added benefit, these police funds would be reallocated to support people and services that help marginalized communities (education, homelessness, mental health, etc.). 

The Bottom Line

Police discrimination against minorities is a real and growing problem. As more research is performed and published for the public to view, it’ll only create more pressure for change. But it’s up to consumers and advocacy groups to demand it. 

This is possible by following up with legislators about bills aimed at eliminating racial profiling conducted by the police and privately-owned companies. By staying on top of the injustices minorities face and standing up for what’s right, the hope is that we will soon bridge the gap and make these problems disappear.

To read the full article, please click here.

About the Authors

Saphia Laniern (She/Her)

Saphia Lanier is a freelance writer with 13 years of experience in SaaS, digital marketing, and entrepreneurship. She specializes in writing informative, yet engaging content on technologies that enhance your business and marketing techniques to grow your online brand. When she's not hammering away at her keyboard (or researching MarTech trends), she's in the kitchen crafting delicious vegan recipes with her husband and children.



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