Drivers in areas with high density of minority ethnic households are each charged up to £450 a year more, says study
Millions of people living in areas with a high density of minority ethnic households are paying an “ethnic penalty” of up to £450 a year each in higher car insurance premiums, according to a report co-written by the former equality commissioner Trevor Phillips.
The study said there was a strong statistical link between the proportion of minority ethnic households in an area and the cost of car insurance, and added that the phenomenon existed in well-off and poorer areas. It concluded that the way insurers calculated their premiums “has definitely produced an inequality of outcome to the detriment of BME [black and minority ethnic] groups”.
The report prompted an angry reaction from the insurance industry, with the main trade body, the Association of British Insurers (ABI), saying it “makes serious accusations using a flawed analysis” and was compiled “by people with no understanding of how car insurers price their policies”.
The report was published by Webber Phillips, a consultancy co-founded by Phillips, the former chair of the Equality and Human Rights Commission, and was commissioned by a firm of personal injury solicitors.
Webber Phillips was asked to investigate whether there was evidence of systemic bias and said it had found a “strong statistical relationship” between the prevalence of minority ethnic households and the higher cost of average motor insurance premiums for all motorists in each postcode area. The report said these additional costs affected an estimated 12 million people – more than one in five UK adults – regardless of the driver’s ethnic origin.
The authors used data provided by the AA for all 124 postcode areas in the UK and said their analysis showed that about 60% of the variation in average premium could be accounted for by the difference in the ethnic composition of the area, rising to 90% in some cases. “The variations cannot be accounted for by prevalence of crime, fear of crime, available claims data or by relative affluence,” they said.
Insurers were imposing a penalty on motorists living in areas with a high proportion of minority ethnic households, and this varied from an average of £54 in Manchester to £458 in London, said the authors, adding that their findings suggested that some groups were suffering a bigger penalty than others.
Phillips and his co-author, Richard Webber, said some people may conclude that the so-called ethnic effect described in the report might simply be a proxy for high levels of crime. “Intuitively, most people assume that ethnic minorities are poorer than average and live in areas with elevated crime levels,” they said.
“However, this explanation is hard to sustain, if only for the reason that the minority group mostly obviously affected in the UK, Indian-heritage Britons, are far wealthier than other racial minorities and economically almost indistinguishable from white Britons. In fact, this group is slightly more likely than white Britons to occupy higher-skilled professional jobs. Yet they, too, pay a significant ethnic penalty.”
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The report said it was difficult to test the effect of actual levels of crime since reported crime data was “notoriously unreliable”. Instead, the authors said, they had focused on fear of car theft in an area using the most recent official crime survey data.
Phillips said insurers urgently needed to examine their procedures, either to demonstrate beyond doubt that the ethnic penalty did not exist or ensure that new systems were put in place to eliminate discrimination.
“Publicly available government data demonstrates that high levels of vehicle crime are unlikely to be linked to ethnicity, and our analysis shows that the ethnic penalty persists even in areas populated by prosperous minorities … We examined the effect of other factors, such as fear of crime and available claims data, but we did not find that these factors carried any significant weight in our model,” he said.
However, James Dalton, the director of general insurance policy at the ABI, rejected the findings. “Car insurers have never and will never set prices based on ethnicity, as it is ethically wrong and prohibited by the 2010 Equality Act. Premiums are higher in certain parts of the country because claims costs are higher in certain parts of the country,” he said.
“This report was compiled without any consultation with the insurance industry, by people with no understanding of how car insurers price their policies, and was paid for by a firm of solicitors with a vested interest in fuelling the compensation culture.”
The authors of the report, commissioned by Thompsons Solicitors, said that without access to data held by insurers, they could not rule out the possibility of other factors having a role to play, such as taste in vehicles, age profile and immigration status.