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Lawmakers Seek Stronger Monitoring of Racial Disparities in Car Insurance Premiums

In response to our report that minority neighborhoods pay higher premiums than white areas with the same risk, six members of Congress and two Illinois state senators are pushing for closer scrutiny of insurance practices.

Davide Bonazzi, special to ProPublica

Six Democratic members of Congress are urging Treasury Secretary Steven Mnuchin to appoint a director for the Federal Insurance Office, which monitors access of minority and low-income Americans to affordable insurance, and has been targeted for elimination by House Republicans.

Their letter to Mnuchin was spurred by an April 5 article, co-published by ProPublica and Consumer Reports, that documented that residents of minority neighborhoods in four states frequently pay higher car insurance premiums than residents of other areas that are similarly risky. Our investigation has also prompted two Illinois lawmakers and a California consumer group to call for strengthening protections against redlining in auto insurance.

Established in 2010 under the Dodd-Frank Act, the Federal Insurance Office may become a casualty of the Republican effort to replace that law. In their letter to Mnuchin, sent Monday, the six members said it is important to maintain the office’s role as an independent overseer of insurance practices.

“A recent study demonstrating racial disparities in the cost of auto insurance make[s] clear the need for a fully staffed FIO, especially as the Office continues its work to engage the auto industry and track affordability,” the members wrote, referring to our investigation. The letter was initiated by Rep. Gregory Meeks, D-N.Y., and co-signed by Reps. Al Green, D-Texas, Keith Ellison, D-Minn., Frederica Wilson, D-Fla., Al Lawson, Jr., D-Fla., and Vicente Gonzalez, D-Texas.

ProPublica’s examination of premiums and payouts in California, Illinois, Texas and Missouri showed that, despite laws in almost every state banning discriminatory rate-setting, some major insurers charge drivers in minority neighborhoods as much as 30 percent more for car insurance than they charge drivers in majority-white areas with similar accident costs. Those results, the members wrote, are “consistent with” an FIO study in January, which found that 19 million Americans live in neighborhoods — often minority or low-income areas — where car insurance is unaffordable. Together, the letter continued, the studies “underscore the need for FIO to continue to engage the auto insurance industry, collect more information, and conduct a more comprehensive analysis of the auto insurance market in underserved communities.”

A Treasury spokesman acknowledged receiving the letter and said, “We look forward to working with Congress on these important issues.”

The first director of the Federal Insurance Office, Michael McRaith, resigned at the start of the Trump administration and his position remains unfilled. He was unavailable for comment. The treasury secretary has the authority to appoint an FIO director without Senate confirmation.

Meanwhile, House Republicans have released a draft of their Financial CHOICE Act, characterized by its authors as a replacement for Dodd-Frank. The current draft of the bill would merge the FIO with another office and remove the mandate to study affordability issues. The House Financial Services Committee is expected to hold a hearing on the CHOICE Act today.

Jeff Emerson, a spokesman for the House Financial Services Committee, said Dodd-Frank created two positions with “overlapping and conflicting” responsibilities: the FIO director and the Financial Stability Oversight Council Independent Member with Insurance Expertise. The CHOICE Act would combine these two roles into one within the Treasury Department, called the Independent Insurance Advocate.

“Consolidating federal insurance positions into one advocate will give a unified voice and seat at the table for the U.S. insurance industry at the domestic and international levels, while preserving our traditional state-based system of insurance regulation,” Emerson said in an email.

Trade groups, including national associations of insurance commissions and of insurance agents, have called for dismantling the FIO. The National Association of Insurance Commissioners argued in a brief in January that the FIO was “an unnecessary federal entity that should be eliminated.” The National Association of Professional Insurance Agents said the law establishing the FIO should be repealed and that “regulation of insurance should continue to be the responsibility of the states.”

After our article was published, two Illinois state senators, Jacqueline Collins, D-Chicago, and Daniel Biss, D-Evanston, proposed barring car insurers there from using a person’s zip code to determine premiums. In Illinois, ProPublica found, 33 of 34 companies analyzed were charging at least 10 percent more, on average, for the same driver in minority zip codes than in comparably risky white zip codes. Insurance regulation varies widely from one state to the next, with Illinois being one of the least-regulated markets.

“Whether it’s drawing red lines on a map, labeling a community ‘congested’ and ‘dangerous,’ steering residents towards subprime mortgages, or defining drivers by their credit scores or zip codes, racial disparities in economic transactions have stubbornly persisted — to our state’s shame,” Collins, who serves on the state Senate’s insurance committee, said at an April 17 press conference.

The senators said they plan to add the zip code ban to another bill, now pending, that would prohibit the use of credit ratings to set premiums. Some states already prohibit insurance companies from using credit scores — which Collins said can be a proxy for race and class — but Illinois is not one of them.

“Part of the problem here is that the actual formulas that they use are proprietary, and we don’t know what all goes into them,” said Biss, who is running for governor. “But what we do know is that, when we try to pass legislation that stops them from using credit history, they fight us tooth and nail, with every dollar they have. When we try to pass legislation that stops them from using zip codes, they fight us tooth and nail, with every dollar they have. That gives us a pretty good idea of what’s probably happening under the hood. As far as I’m concerned, the outcome tells the most important story. They’re not allowed to discriminate, and yet they do.”

On April 5, Consumer Watchdog, a California nonprofit group, wrote to California Insurance Commissioner Dave Jones, urging him to “open an investigation into the potential redlining uncovered” by our report published that day. One author of the letter, Harvey Rosenfield, founder of Consumer Watchdog, originally drafted and led the campaign for Proposition 103, which was adopted by referendum in 1988 in California and remains in effect. It prohibits insurance companies from basing their rates primarily on a customer’s zip code.

“California voters banned zip code-based insurance pricing when they passed Proposition 103 to prevent auto insurers from discriminating against minority drivers,” said Carmen Balber, executive director of Consumer Watchdog, in a press release. ProPublica’s data “raises troubling questions about whether auto insurers in California are violating that law and again rating drivers based on where they live, instead of how they drive.”

The California Department of Insurance declined to comment.

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