Study finds Black and Asian drivers pay £250 more for car insurance
Year-long investigation from Citizen's Advice finds 'Ethnicity Penalty' after analysing payments of 18,000 drivers
New research from Citizens Advice has found of people from Black and Asian backgrounds are paying hundreds of pounds a year more for their car insurance.
As part of a year-long investigation, the charity analysed 18,000 car insurance costs reported by people who asked Citizens Advice for debt help in 2021.
It found that, on average, drivers from minority backgrounds paid £250 a year more than white people.
The Association on British Insurers says insurers "never use ethnicity as a factor" when setting prices and that members "comply with the Equality Act."
Some drivers are paying £280 more
The second part of the research from Citizen's Advice shone a spotlight on eight postcodes, to compare areas where there is a high white population to areas where there is a high proportion of minority ethnicities.
It found people living in the areas where there’s a high proportion of people of colour paid at least £280 more for their car insurance.
Everyone who lives in the postcode pays the higher prices, regardless of their ethnicity.
But if this trend were to be replicated across the country, Black and Asian drivers would be 13 times more likely to be paying it than white people
Citizen's Advice say this could total payments of at least £213 million a year more on their car insurance.
Drivers pay "ethnicity penalty"
The charity stress-tested the postcode findings and found that common risk factors of crime rate, deprivation, road traffic accidents and population density, could not account for the difference in price.
Citizens Advice is now calling on the Financial Conduct Authority (FCA) to ensure no one pays an "ethnicity penalty" in the insurance market.
How have they come to these findings?
When Citizens Advice analysed the 18,000 car insurance costs, the findings showed a trend.
Black and Asian drivers paid an average £250 more for car insurance regardless of gender, age, and income.
The charity also carried out 649 "mystery shops" using six personas across eight postcodes.
The majority of the personal details submitted online, including car, job and no claims history, remained the same.
In postcodes where over 50% of the population are from minority backgrounds, the charity found an ethnicity penalty of at least £280 a year. But this was even higher in areas with a higher proportion of people of colour.
The average quote in a low-crime area where most of the population were from minorities, was more than double that in a largely white area with a much higher crime rate.
Why is this happening?
Insurers don’t collect ethnicity data.
Citizens Advice says the volume of data now available means there is a real risk that other data can be used as a "proxy" for the ethnicity of customers.
They say this data is processed through complex algorithms which are hard to examine, making it difficult to track if some groups are paying more than others.
This could be leading to the ethnicity penalty discovered through this research.
The charity is calling on the FCA to set out how insurance firms must prove they abide by the Equality Act 2010. It must also require insurance firms to audit and account for their pricing decisions. If the firm cannot explain any ethnicity pricing differences, the regulator must take enforcement action.
Dame Clare Moriarty, Chief Executive of Citizens Advice, said:
“For too long the impenetrable nature of insurance pricing has just been accepted, but a £280-a-year ethnicity penalty cannot be allowed to continue.
“It is time for the FCA to lift the bonnet on insurance firms’ pricing decisions and ensure no one is paying more because of protected characteristics like race.
“The use of algorithms has real-world implications for real people. They must be applied with caution, under the careful scrutiny of regulators.”
What do the insurance industry say?
James Dalton, Director of the Association of British Insurers told us:
“Insurers never use ethnicity as a factor when setting prices and our members comply with the Equality Act.
"All other rating factors being the same, two people of different ethnicities who live in the same postcode will pay the same premium for their car insurance.
“Insurance is priced on individual risk levels and there are many different risk related factors that are used to calculate the price of a car insurance policy which, as Citizens Advice recognise, should not be looked at in isolation but ethnicity is not one of them.
"As the report says, the research ‘was exploratory, and therefore cannot definitively identify what is driving this trend.’
“However, we recognise this report raises an important public policy debate.
"Like everyone, our sector has a role to play in addressing inequalities that exist in wider society and it’s an issue that we will continue to engage on constructively as an industry.”