Hundreds of thousands of people of colour may be paying an “ethnicity penalty” of at least £280 a year each in higher car insurance costs, an investigation by Citizens Advice has claimed.
The national charity said its year-long investigation had uncovered a “shocking trend” of people of colour paying a lot more for motor cover than white people, and that the penalty was up to £950 in some locations.
However, the main insurance industry trade body disputed the report’s conclusions, saying insurers “never” used ethnicity as a factor when setting prices.
Working with the research agency Europe Economics, Citizens Advice carried out 649 mystery shops for car insurance quotes using six different customer names across eight postcodes in England. The aim was to compare areas with a high white population with those where there was a high proportion of people of colour.
The charity estimated that 754,000 people of colour held car insurance policies and lived in areas affected by the alleged ethnicity penalty.
Citizens Advice said it found that in some areas “the difference in price was more than 100%,” and that common risk factors such as crime rates and deprivation levels could not account for this. “We’re concerned this suggests that areas with large communities of colour may be identified as more risky, even when objective risk factors are controlled,” it said.
It found that quotes in areas with large proportions of black or south Asian people came in at least £280 higher than quotes in largely white postcodes, but that the ethnicity penalty was “up to £950 in some places”.
In Bristol – the location of two of the postcodes – an area with a population that comprised 41% black people and 18% south Asian people produced an average quote for a Vauxhall Corsa that was £283 – or 51% – higher than that for a neighbourhood less than two miles away with an 87% white population. “This is despite the white area having a higher relative crime rate,” said the report.
For the “customers” the researchers picked names often associated with certain ethnic groups, though Citizens Advice said these ended up not having much impact on the prices being quoted. “This suggests this penalty is paid by everyone who lives in an area, regardless of their ethnicity. However, people of colour are [statistically] far more likely to pay it,” it added.
Separately, the charity analysed 18,000 car insurance costs reported by people who came to it for help with debt in 2021. It said it found that on average, people of colour paid £250 a year more than white people.
Possible links between insurance and ethnicity have been highlighted before: in 2016, a report co-written by the former equality commissioner Trevor Phillips claimed millions of people living in areas with a high density of minority-ethnic households were paying an “ethnic minority penalty” of up to £450 a year in higher motor premiums.
Responding to the latest findings, James Dalton, the director of general insurance policy at the Association of British Insurers, 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.”
He added: “Insurance is priced on individual risk levels, and there are many different risk-related factors that are used to calculate the price … but ethnicity is not one of them.”