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Controversy over “ethnic penalties” in insurance

Controversy over “ethnic penalties” in insurance

Controversy over “ethnic penalties” in insurance The insurance industry may be slowly attempting to turn around its image of having a lack of diversity in the industry, but now it has been dealt a new blow as it has been suggested that policyholders may be being punished because they live in areas with a higher density of minority ethnic households.

A report, co-written by former equality commissioner Trevor Phillips, and reported on in The Guardian, suggests that policyholders are paying an effective ‘ethnic penalty’ as high as £450 a year as it points to a statistical link between the proportion of minority ethnic households in an area and the cost of car insurance – adding that the link applies to both well-off and poorer areas.

In its conclusion it states that the manner in which insurers calculate premiums “has definitely produced an inequality of outcome to the detriment of black and minority ethnic groups.”

Overall, the study suggests that additional costs affect around 12 million people irrespective of ethnic origin. It draws on data from the AA for all 124 postcode areas across the UK and states that there is around a 60% variation in average premiums, which in some cases rises as high as 90%, which may be accounted for by the difference in ethnic composition.

Explaining that some people might conclude there is a link between ethnic minorities living in high crime areas it states “this explanation is hard to sustain” pointing out that Indian-heritage Britons are economically almost indistinguishable from white Britons and in fact are slightly more likely to have high skilled jobs.

The report, published by Webber Phillips, has been met with anger by the Association of British Insurers (ABI) which responded by stating the report makes “serious accusations using a flawed analysis” and was put together “by people with no understanding of how car insurers price their policies.”

The Guardian quotes James Dalton, the director of general insurance policy at the ABI, rejecting the findings.
“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,” he said.

“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.”

What do you make of the report’s findings? Leave a comment below with your thoughts.

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  • Michael Boyd 11/08/2016 01:41:34
    Isn't it convenient that the disclaimer about the report being compiled by people with no insurance industry experience or knowledge of actuarial pricing strategies is placed near the end of the article.
    This is just a cheap grab for headlines....SMH!
    Post a reply
  • Jack Brownhill 23/08/2016 16:25:19
    There appears to be no mention of the survey on their website - this appears to be the logical place to provide a detailed briefing on the research and the conclusions. Is the full survey report in the public domain and does it explain in detail how they researched the pricing?
    Post a reply
  • George Bassett 23/08/2016 18:13:05
    It looks like it's part of some system you have to pay for - theres a sort of explanation here but it's not free to access originsinfo.eu
    Post a reply