A study from the Consumer Federation of America (CFA) found that good drivers living in largely African-American communities pay more for car insurance than drivers living in mostly Caucasian ones, all other things being equal. How much more? Up to 70 percent in some cases.

The data

Here’s how the CFA came to that shocking conclusion.

First, it gathered rate information from five different carriers. Among them: Allstate, Farmers, and Progressive. Second, it used the same driver profile—besides location—for all of the car insurance quotes it collected. The details that made up that profile:

  • 30-year-old single female
  • No accidents or other violations
  • High school diploma
  • Fair credit rating
  • 2000 Honda Civic EX
  • Drives 10,000 miles each year
  • Seeks minimum insurance required by the state

When combined with locations where three-quarters or more of the residents are black, CFA’s “typical good driver” paid, on average, $1,060 a year. When combined with locations that are mostly white, the driver paid $622 annually.

These amounts varied based on density. For example, in more urban areas, the difference between drivers was 60 percent. In rural zip codes, the difference was 23 percent.

The biggest discrepancy popped up when the CFA looked at upper middle-income communities. People in mostly black areas who had upper middle-incomes paid $2,113 a year. Similar drivers living in mostly white areas paid a yearly premium of $717. The difference? An astounding 194 percent.

Out of the five carriers CFA surveyed, Progressive and Farmers had the biggest gap in rates. Both insurers showed a difference of about 92 percent between a good driver living in a mostly black zip code and a good driver living in a mostly white one. GEICO’s gap was the smallest, at 52 percent.

As for specific cities, CFA found the following to have the largest gaps:

In contrast, these areas have the smallest gaps:

Possible explanations

The Insurance Information Institute’s Steven Weisbart recently told the Baltimore Sun there could be several reasons for the rate differences. He pointed to a person’s credit score as one factor. Another possible factor is the overall number of accidents in an area.

"When insurance companies price their policies, they don't even know who's black and who’s not," said Weisbart, III’s senior vice president and chief economist. "So they couldn't, even if they wanted to, charge higher rates for African-American policyholders. It would be something that would arise out of the other factors."

For his part, CFA’s director of insurance, J. Robert Hunter, says there couldn’t be any other explanation for the discrepancy. “We used the exact same driver and car characteristics, only changing the place lived from mostly minority to mostly white. As to place, we held other possible reasons constant, such as income level and density of cars, so we think there is no other reason.”

What is being being done to change this?

Does all of the above mean insurers purposely discriminate against black drivers? The CFA says it doesn’t.

Still, it asked state and federal regulators to look into the issue. It also asked them to set new rules to prevent good drivers from overpaying for car insurance.

“Insurers might voluntarily do something but the ultimate solution must come from the individual state insurance regulators,” Hunter said.

The CFA study discussed earlier suggests insurers give more weight to a person’s driving record than factors like location and credit score. It also offers up new guidelines. One of them has insurers provide rates for a good driver in every zip code. Another has them provide demographic information on each area. Insurance companies who issue higher premiums to drivers in mostly black areas would then have to explain those rates.

One state already has rules in place to help safe drivers get affordable insurance. California offers good drivers the minimum liability coverage required for around $213 to $363 annually. Good drivers there also get a 20 percent discount. The CFA wants other states to adopt similar discounts no matter the location.