Troubleshooters: Consumer Federation of America responds to auto insurance price disparities investigation

LOUISVILLE, Ky. (WAVE) - Tayquan Spencer-Smith was shocked at the differences he saw when shopping for car insurance, when all other factors were the same, but swapping out his west Louisville address for one in east Louisville.

“It is appalling, because we’re making up what they don’t want to charge someone else,” Spencer-Smith said.

The investigation was then taken to a larger 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 various zip codes around Louisville.

In the east end, in zip codes like 40223 in Anchorage/Middletown and 40299 near Jeffersontown, the yearly insurance cost 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 around $4,482.

However in the West End zip codes, like 40210, 40211, and 40212; neighborhoods such as Park Hill, Park Duvalle and Chickasaw, the yearly insurance costs were more than double the east 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,” Consumer Federation of America Research and Advocacy Associate Michael DeLong said.

The Consumer Federation of America saw the original report and sent a five-page letter to the Kentucky Department of Insurance urging an investigation of 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 goes up, 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 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 we 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 actually paying a higher premium on average than a Kentucky driver with excellent credit but a drunk driving conviction. That makes no sense. That’s not accurate. That’s 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 records.”

According to the chart the CFA included in their letter to the state insurance department, whether a person is in the East End or West End, the difference in auto insurance premiums between people with excellent credit verses poor credit is substantial.

In the West End zip codes of 40210 and 40212, it’s two-and-a-half times more.

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’re discriminating against poor consumers in order to give favors to the wealthier consumers that have more disposable income, so they can buy additional policies.”

While we couldn’t get an answer from insurance companies, some agents have suggested the zip code disparity has to do with crime.

Our analysis of Louisville Metro Police crime data found a heavier proliferation of vehicle theft and vehicle break-ins in the West End.

“Crime may play a role, but it’s not enough,” DeLong said. “It doesn’t account for the very big premium increases we’ve seen.”

The CFA’s letter to the state insurance department said in their study of “every ZIP code in America, CFA found that the Louisville Core-Based Statistical Area has the third most severe disparities in auto insurance premiums between communities that are predominantly white and those that are predominantly Black.”

They cite a Federal Insurance Office study that shows “over 400,000 Kentucky residents live in 99 ZIP Codes where auto insurance is unaffordable, including the West End communities described in the WAVE 3 report.”

“The horrible thing about this is Kentucky is requiring people to purchase auto insurance, but the Kentucky Department of Insurance isn’t doing its job to ensure this is affordable and needs to step up and do its job,” DeLong said.

On Monday, an interview was requested with the state insurance department about this or a comment responding to the CFA letter. They said they would get back to us, but haven’t as of deadline for this report.

You can read the entire letter from the Consumer Federation of America here:

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