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'Ethnic minority penalty' report oversimplifies insurers' pricing policies, says expert

11 Aug 2016, 5:29 pm

Recent reports that people who live in areas with a higher proportion of ethnic minority residents are paying more for car insurance oversimplify insurers' pricing policies, an expert has said.

Katie Tucker of Pinsent Masons, the law firm behind Out-Law.com, pointed out that using a person's race when pricing an insurance policy was "discriminatory and unlawful under the 2010 Equality Act".

Industry body the Association of British Insurers (ABI) has criticised the report, which was compiled by consultancy Webber Phillips and reported on by the Guardian earlier this week. James Dalton, the ABI's director of general insurance, said that the report had been put together "without any consultation with the insurance industry, by people with no understanding of how car insurers price their policies".

Tucker, an insurance law expert at Pinsent Masons, said that discrimination law was a complex issue. She said that the Webber Phillips report had simplified the way in which insurers price their policies and had come to its conclusions "without sight of the data used by insurers".

"The ABI has confirmed car insurers' pricing practices are not based on ethnicity," she said. "However, insurers should also consider whether the use of other risk factors, such as postcode, could indirectly discriminate against people of certain ethnicities."

The report, which was commissioned from the consultancy by a firm of personal injury solicitors, appeared to show a "strong statistical link" between the proportion of ethnic minority households in a particular postcode area and the cost of car insurance in that area, regardless of the relative wealth of the area, according to the Guardian. This resulted in an increase on annual premiums of between an average of £54 in Manchester and £458 in London, the Guardian said.

The researchers used "publicly available data" when compiling the report, including the AA's motor insurance pricing data and official crime survey data. The latter showed that high levels of vehicle crime were "unlikely to be linked to ethnicity", the Guardian quoted the report as saying.

"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," the Guardian quoted the authors of the report as saying.

The authors said that without access to data held by insurers, they could not rule out the possibility of "other factors" having a role to play in the price discrepancy, according to the Guardian.