Britain asks: Is car insurance racist?

LONDON — If you’re a Black person driving in Britain, chances are you’re paying more for your car insurance than a white person in the lane next to you. 

According to consumer groups, insurance data models are baking in higher prices for people of color. The industry insists it does not collect data based on ethnicity — so can’t be singling people out directly based on race.

Yet postcodes, credit scores, age and other factors may all be hiking prices for Black and Asian drivers — who then have to cough up for the mandatory protection.

“We think that this is an example of indirect discrimination,” said Dave Mendes da Costa, principal policy manager at Citizens Advice.

It’s already posing a headache for Britain’s new government, which has vowed to tackle the spiraling costs of car insurance, including for those hit hardest by higher prices.

Yet finding a way to lower premiums for those being discriminated against may come at a cost for drivers already paying less. Someone has to make up the difference.

“That would be Middle England,” said a senior City lawyer, granted anonymity to speak freely. “And that’s a political hot potato.”

‘Pop the bonnet’

The figures suggest there’s a serious problem.

According to research from Citizens Advice, people of color pay £307 extra a year compared to white drivers for the same car insurance. Research using data from the charity’s debt advice clients found a similar penalty in previous years. According to data from over 20,000 insurance customers, people of color pay 39 percent more for car insurance than white people. This rises to 42 percent for Black people.

The advice charity also said it undertook a mystery shopping exercise that showed, when controlling for higher crime rates — which could in theory justify inflated costs for increased risks — prices were still higher in areas home to mainly ethnic minorities.

“We want to see insurers and regulators do more to actually pop the bonnet on what’s going on here,” said Mendes da Costa.

“Some factor is driving these different outcomes and what we think is the most likely guess is postcodes.”

The topic is, unsurprisingly, highly sensitive. A BBC report in February was removed from its website after it did not establish causation as well as correlation when describing higher premiums in ethnically diverse areas.

The insurance industry, meanwhile, says factors like age, driver experience and type of vehicle play into models, as well as the claims history of the area where someone lives and drives.

The data might genuinely reflect higher risks, such as crime rates in urban areas, as more ethnic minorities live in London than anywhere else in the country. And Black and Asian people are more likely overall than white Brits to live in deprived neighborhoods.

If the discrimination is inadvertent, insurers should be able to find the data point that could be skewing models and remove it or lessen its impact.

But it’s still not clear what exactly may be twisting models, especially as different insurers plug in different data.

The sector says it’s happy to investigate. A spokesperson for the Association for British Insurers (ABI) says the industry is willing to dig deeper into “how wider societal issues might affect insurance costs.”

“Beyond accident and crime rates, several factors including road type, traffic system designs, traffic density, types of vehicles in the area and local repair prices will contribute to the cost and severity of claims,” said the spokesperson.

“I would expect insurance companies would be keen to do all they can to refine their input data sets using more granular data to ensure discrimination is removed in their pricing,” said Conservative MP John Glen, a former City minister who now sits on parliament’s Treasury Committee.

Labour’s headache

In the meantime, Labour is pressing ahead with its manifesto pledge to “tackle the soaring cost of car insurance,” which has shot up by 21 percent since June 2022.

A new government taskforce, bringing in charities and businesses, is looking into why prices have risen and how they can be reduced. The group met first in October but there is no date for reporting back its findings. Prime Minister Keir Starmer vowed in June that his government would ask regulators to investigate “whether postcode pricing practices are unfairly targeting ethnic minorities and those on lower incomes.”

But any intervention to lower prices for ethnic minorities may push up costs even further for other drivers — exactly the opposite of what the government wants.

“Motor insurers still need to make money, so they would put up premiums for other people,” said the City lawyer. “Although somebody’s insurance may come down, somebody else’s will go up.”

Car insurance isn’t a particularly profitable business, and insurers themselves won’t want to swallow the difference.

Any hike in premiums would be dicey for a government that’s vowed to tackle costs for all drivers. 

The party’s already having to deal with accusations it rowed back on an election promise not to touch working people’s pay after hiking employer taxes. 

The U.K.’s financial watchdog has the power to take action if it finds firms are discriminating against customers. It can force insurers to demonstrate they’re providing fair value to consumers.

“As part of the government’s motor insurance taskforce, we’ll be analyzing how rising prices affect different customer groups, including those from ethnic minority backgrounds,” said a spokesperson for the Financial Conduct Authority.

“Firms must be able to show us that their pricing is not discriminatory, and we’ll take action where we see people aren’t getting fair value for the cover they need.”

A more permanent fix is trickier. But the government does have options.

It could legislate to stop insurers pricing policies from postcodes, if it decides they are making insurers’ models inadvertently discriminatory.

Or, if it finds there are legitimately higher risks for Black and Asian drivers in certain neighborhoods, it could try and replicate a model for flood-hit homes in Britain where those risks are pooled together to keep prices affordable.

Another option could be to take action after the fact through targeted bill support or a voucher scheme, without messing with insurers’ models directly.

But the government may not want to take any of those options if they come at a cost to Middle England — especially when it’s still unclear what’s driving the problem.

“This government is delivering on its manifesto commitment to act on the high cost of insurance for drivers,” said a Treasury spokesperson. “And our taskforce will consider how high prices are impacting different demographics, including ethnicity.”