LOUISVILLE, Ky. (WAVE) – Tayquan Spencer-Smith was shocked at the changes he saw when he shopped for car insurance, all other things being equal, but swapping his west Louisville address for one in east Louisville.
“It’s scary because we’re creating what they don’t want to accuse anyone else of,” Spencer-Smith said.
The investigation was then taken on a wider scale. A family with the same driving record, the same three cars and the same coverage was brought to a licensed insurance agent to provide auto insurance quotes.
The only thing that was changed was the family’s address to put them in different zip codes around Louisville.
On the east end, in zip codes like 40223 in Anchorage/Middletown and 40299 near Jeffersontown, the annual cost of insurance was just over $3,000.
In 40217, the Schnitzelburg area, it was just over $4,000.
In the South End, like 40272 near Valley Station, it was about $4,482.
However, in West End zip codes such as 40210, 40211 and 40212; neighborhoods such as Park Hill, Park Duvalle and Chickasaw, annual insurance costs were more than double the eastern end. Prices ranged from $6,318 to $6,653 in ZIP codes with median household incomes ranging from $20,000 to $27,000 a year.
“It’s a prime example of unfair discrimination, and that’s why we’re calling on the Kentucky Department of Insurance to investigate what’s going on,” said Michael DeLong, Research and Advocacy Associate at Consumer Federation of America.
Consumer Federation of America without the original report and sent a five-page letter to the Kentucky Department of Insurance requesting an investigation of the pricing practices.
Researchers at the organization, like DeLong, took a longer look at Kentucky.
“We’ve noticed that as the percentage of black consumers in a neighborhood increases, so do auto insurance premiums,” DeLong said. “So racism is pretty widespread.”
In addition to what the CFA called “territorial price discrimination,” it also found that a person’s credit history may have more to do with what a person pays than their driving history.
“We did our own analysis of some of the zip codes you mentioned and found drivers in the West End with poor credit pay over $1,000 more for auto insurance than drivers in the East End with poor credit,” DeLong said. “In Kentucky, someone with a good driving record but poor credit is paying a higher premium on average than a Kentucky driver with excellent credit but a drunken driving conviction. This doesn’t make sense. This is not correct. That is un-American. It’s harmful and we think auto insurers should stop trying to discriminate against poor consumers and actually charge people based on their driving record.”
According to the chart that CFA included in their letter to the state insurance department, regardless of whether a person is located in the East End or the West End, the difference in auto insurance premiums between people with excellent credit and poor credit is substantial.
In the West End zip codes of 40210 and 40212, it’s two and a half times as much.
So why are auto insurers doing this?
“We think auto insurers are using these factors of someone’s neighborhood, zip code, credit history, as proxies for income and indirectly for race,” DeLong said. “They are discriminating against poor consumers to favor wealthier consumers who have more disposable income so they can buy additional policies.”
While we couldn’t get an answer from insurance companies, some agents have suggested that postcode disparity has something to do with crime.
Our analysis of Louisville Metro Police crime data revealed a greater prevalence of auto thefts and auto break-ins in the West End.
“Crime can play a role, but it’s not enough,” DeLong said. “That doesn’t account for the very large premium increases we’ve seen.”
CFA’s letter to state insurance departments said in their study of “every ZIP code in America, CFA found that the Louisville Base Statistical Area has the third-worst disparities in auto insurance premiums among communities that are predominantly white and to those who are predominantly black.”
They cite a Federal Insurance Office study showing that “over 400,000 Kentuckians live in 99 ZIP codes where auto insurance is unaffordable, including the West End communities described in the WAVE 3 report.”
“The terrible thing about this is that Kentucky is asking people to buy auto insurance, but the Kentucky Department of Insurance is not doing its job to make sure it’s affordable and it needs to step up and do the work his,” DeLong said.
An interview with the state insurance department on this or a comment in response to the CFA letter was requested on Monday. They said they would get back to us, but they haven’t by the deadline for this report.
You can read the full letter from the Consumer Federation of America here:
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