As part of a year-long investigation, Citizens Advice analyzed 18,000 car insurance costs reported by people across England and Wales, and uncovered some concerning disparities
Hundreds of thousands of people of color may be paying an “ethnicity penalty” of at least £250 a year each in higher car insurance costs, an investigation by Citizens Advice has claimed.
The charity said it uncovered a “shocking trend” of people from ethnic minority backgrounds paying hundreds of pounds a year more for their car insurance than white people.
As part of a year-long investigation, the charity analyzed 18,000 car insurance costs reported by people across England and Wales who came to Citizens Advice for debt help in 2021.
It found that, on average, people from ethnic minority backgrounds paid £250 a year more than white people – regardless of gender, age and income.
The Association of British Insurers (ABI) said insurers never use ethnicity as a factor when setting prices but it recognizes the charity’s report “raises an important public policy debate”.
Citizens Advice also carried out 649 mystery shops in England using six people across eight postcodes.
The majority of the personal details submitted online, including car, job and no claims history, remained the same.
In postcodes where more than 50% of the population are from ethnic minority backgrounds, the charity found an “ethnicity penalty” of at least £280 a year.
The charity claimed that local risk factors such as the crime rate, deprivation, road traffic accidents and population density could not account for the price differences.
It used population data from the 2011 census to calculate the number of white people and ethnic minorities living in diverse areas in England.
Citizens Advice said it is urging the Financial Conduct Authority (FCA) to ensure no one pays such a penalty in the insurance market.
The charity said that, while insurers do not collect ethnicity data, it fears 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.
Data is processed through complex algorithms which are hard to examine, making it difficult to track if some groups are paying more than others, Citizens Advice said.
The charity wants the FCA to set out how insurance firms must provide they abide by the Equality Act 2010. It said if a 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.”
An FCA spokesperson said: “We welcome Citizens Advice’s work on this important issue. Their analysis highlights a risk of discrimination based on race and raises some potentially challenging questions for insurers.
“Firms must not use data in their pricing that could lead to discrimination based on protected characteristics, such as ethnicity, and we have acted where we’ve had concerns, including writing to all insurers setting out our expectations.
“Firms must also be able to assure themselves, and us, that any risk factors they include also do not result in discrimination. We will continue to consider any evidence we receive of concerns around pricing.”
James Dalton, ABI director, general insurance policy, said: “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 recognize 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.”
George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.