Insurers under spotlight as study suggests “ethnic charge” on motor insurance

This article was published on: 08/12/16

The motor insurance industry is under the spotlight, after a study revealed that areas with high ethnic populations were being charged more for their car insurance.

The study, co-written by the former chair of the Equality and Human Right’s Commission, Trevor Phillips, suggested that areas with a high density of minority ethnic households are paying up to £450 a year each in higher car insurance premiums.

Following the revelations of the report, Phillips is labelling this as an “ethnic penalty” and calling for answers from the insurance industry. on exactly what factors they consider when working out the cost of insurance premiums. He has since urged the insurers to either examine their procedures thoroughly or prove beyond doubt that the ethnic penalty does not exist.

“Publicly available government data demonstrates that high levels of vehicle crime are unlikely to be linked to ethnicity, and our analysis shows that the ethnic penalty persists even in areas populated by prosperous minorities … We examined the effect of other factors, such as fear of crime and available claims data, but we did not find that these factors carried any significant weight in our model,”

In response the Association of British Insurers (ABI) has played down the report’s findings. Director of General Insurance Policy, James Dalton, released a statement rejecting the findings, suggesting foul play from the personal injury solicitors who commissioned it.

“Car insurers have never and will never set prices based on ethnicity, as it is ethically wrong and prohibited by the 2010 Equality Act. Premiums are higher in certain parts of the country because claims costs are higher in certain parts of the country,”

“This report was compiled without any consultation with the insurance industry, by people with no understanding of how car insurers price their policies, and was paid for by a firm of solicitors with a vested interest in fuelling the compensation culture.”

However, given the serious nature of what the study alleges, this is a pretty short response from the insurance sector. To put together the study, Webber Phillips took data from the AA covering every postcode from across the UK. So although the report was independent and commissioned by a personal injury firm, the figures themselves are from a respected source and one that actually offer insurance services themselves.

The analysis displayed that, of the variation in average premium, around 60% could be accounted for by difference in ethnic composition in the area. In some cases this figure raised to a staggering 90%. Taking account the assumed factors for how motor insurance is calculated, including crime rates, crime risk, available claims data etc. , it is difficult to see where these variations are accountable to. .

An example of the variation in motor insurance premiums  is the difference between Manchester, where there is an average variation of £54, and London, where the average variation is £458.

There could be a counter argument here on the differing levels of crime expected and feared within these two locations. However, Mr Phillips has dismissed this, suggesting that the minority group most obviously affected in the UK by the increased premiums were those of Indian heritage, who are, usually, wealthier than other ethnic minorities within the UK.

“Intuitively, most people assume that ethnic minorities are poorer than average and live in areas with elevated crime levels,”

“However, this explanation is hard to sustain, if only for the reason that the minority group mostly obviously affected in the UK, Indian-heritage Britons, are far wealthier than other racial minorities and economically almost indistinguishable from white Britons. In fact, this group is slightly more likely than white Britons to occupy higher-skilled professional jobs. Yet they, too, pay a significant ethnic penalty.”

In Lancashire, Blackburn and Burnley are under the spotlight for seemingly inflated premium prices. According to the study, people in the BB postcode are currently paying £279 more than the national average premium of £552 per year.

Former Blackburn MP, Jack Straw, has criticised the report’s findings, and like the ABI, has tried to shift the attention back on to the personal injury profession. For many, the lack of a logical defence, supported by fact, along with the findings of the report, may show people there is more to the study’s findings than the alleged compensation culture.

Scott Rees and Co Partner, David Byrne, reacted to the release of the study, saying; “Obviously it is a dangerous precedent to suggest that the insurance companies are devising their premiums based on the background of ethnicity that an area holds, but clearer answers from the insurers will help to counter balance this debate.”

“The ABI have labelled the study as an attempt by personal injury solicitors to pedal a vested interest in fuelling the compensation culture. Yet, even though it is commissioned by a firm of solicitors, an impartial author, who has no gain from pedalling such propaganda, wrote it.”

“What this study does prove is that there is more to the mechanics of how insurers calculate premiums than what we are led to believe and as of yet they have not come forward with a full explanation.”

“For years they have pushed upon the government, the idea of a compensation culture and an apparent fluctuation in the number of fraudulent claims being made, as the reasons behind increasing insurance premiums. This study questions these propositions and it is only right we investigate these in the same way that other alleged reasons for escalating premium prices have been.”

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