People driving in Michigan pay on average $983.60 a year for insurance. If you think this overwhelming, just take a look at the figure that the driver of Detroit pay on average - a whooping $10,723.22 on average.
As per the insurers, it’s due to the growing risk of crimes and uninsured drivers in the city, while the consumers argue that the incomes and skin color might have some involvement in the skyrocketing rates. They are accusing the insurance companies of Michigan for engaging in a prejudiced practice called redlining.
Detroit isn’t the only city. A recent survey conducted by Consumer Federation of America reveals that drivers of low-income ZIPs pay more for car insurance than anywhere else. But should we blame redlining for higher urban premiums?
Insurance companies deny the very existence of redlining, but industry experts claim that it affects the price rise and reduces access to car insurance for those who need protection the most.
What is redlining?
The term “redlining” is usually used by researchers to denote a few different types of practises.While discussing redlining, it’s actually the refusal to write policies that they talk about.
As per Squires, in the 60s, high-risk ZIPs were often outlined in red on insurers’ maps. Agents were strictly prohibited from writing policies in these zones. Again, Squires claims that companies have also adopted ‘arbitrary underwriting guidelines, which stayed even after most maps disappeared.
Some companies never write policies on houses more than 50 years old or worth less than $100,000. Researchers have found that in minority neighborhoods, insurance firms price policies absolutely out of proportion to risk, thus making it almost difficult for some to even have insurance at all. The industry calls this redlining, or reverse redlining.
Nowadays, Detroit residents and politicians are accusing insurance companies for redlining in their city.
Do insurance companies still redline?
What insurers claim, redlining is an even of past and nowadays, no policy is based on either race or ethnicity. Martin Grace, a risk management professor at Georgia State University, believes that nowadays, discriminatory practises have become very difficult for insurance firms to carry. “If you refinance, you’re almost always in a market for a new insurance policy. And homeowners insurance is really competitive. But if someone bought their house 50 years ago, with a policy with very high rates embedded in it, they may still have that company.”
“I believe it’s possible that companies could discriminate, but if they were to and it was discovered, it would be such a black eye.”, he added.
However, professors Michael Stoll & Paul Ong at the University of California at Los Angeles have found proof of discrimination in low-income minority neighborhoods. In a paper named “Redlining or Risk?” the duo stated that higher risk factors including crime and claim rates drove higher rates in Los Angeles’ minority dominated ZIP codes.
Is redlining illicit?
“Redlining for ethnic, gender or religious reasons is inappropriate,” said Ron Garcia, former senior deputy director of Fannie Mae. Ron also opines that businesses and individuals often redline in other ways too. “Capital markets redline everywhere. Starbucks only opens up where they can get a return on their investment, based on the community. You decide where you want to shop based on where you feel comfortable.”
However, he admits that insurance companies have greater responsibilities towards fulfilling human interests than any coffee shop.
What can you do against redlining?
You can always comparison shop. In addition to this, you can always look for government programs for more affordable insurance programs. California’s low-income auto insurance program might be a good one to start with.
If you have any doubt or proof of discrimination, you can file a complaint with your state’s insurance commissioner’s office, the Department of Housing and Urban Development (HUD) or the Justice Department. However, as per Squires, the most effective recourse could be contacting the National Fair Housing Alliance.
