- Unfair discrimination is sometimes an invisible factor that affect your risk level and premiums
- If you feel like you might be unfairly discriminated against when shopping for insurance, you can protect yourself by researching the trustworthiness of your insurance provider.
- You can also contact your state’s insurance department to report a dishonest provider if you experience unfair treatment.
Insurance companies use a process called underwriting to determine your risk level. If you’re considered a high-risk consumer, your insurance premiums will most likely be more expensive. Insurance companies, however, cannot use race, religion, sex, or national origin to charge you higher premiums or deny coverage. To do so would be considered unlawful discrimination.
While unfair discrimination is illegal in all US states, people of color and history underrepresented groups are still disproportionately affected by discriminatory practices in insurance.
What constitutes unfair discrimination?
Insurers use risk to determine how much to charge an individual and whether an individual qualifies for coverage. An insurance company may use two types of discrimination: disparate impact and unfair discrimination. The first is legal. The second type is not.
unfair discrimination occurs when factors such as race, national origin, and religion are metrics used in the insurance underwriting process. Unfair discrimination is ” a consumer is not treated fairly and equitably through the process of purchasing a product, through the claims process, or simply being offered products that are of the same value and quality as others,”
Chlora Lindley-Myers, Director of Missouri Department of Commerce and Insurance, and co-chair of the special (EX) committee on race and insurance at the National Association of Insurance Commissioners. Unfair discrimination is illegal in every US state.
Disparate impact is a method of proving discrimination when there is no overt discrimination against members of a protected class, according to Susan Stead from Squire Patton Boggs, and a member of the board at the Federation of Regulatory Counsel (FORC) — a non-profit insurance regulation agency. Disparate impact is a legal method of determining a consumer’s risk. An example of disparate impact is insurers giving you higher rates or denying coverage based on traffic violations and frequent claim history.
Discrimination against age, gender, and where you live also falls under disparate impact, meaning insurers can raise premiums or deny coverage based on those characteristics. Nevertheless, this is still a gray area in insurance law.
Lindley-Myers cites three practices that lend way to unfair discriminatory practices.
- redlining† In the 1960s, the Home Owners’ Loan Corporation (HOLC) had color-coded maps which outlined risk levels in certain regions. Minorities predominantly occupied areas identified as “higher risk.” Therefore, minority groups were often denied coverage based on where they lived.
- Credit-based insurance scoring: Where permissible, insurance providers use credit scores to determine an individual’s risk. Many consumers are unaware that this is an element of the underwriting process and have no idea how it works. According to the National Association of Insurance Commissioners (NAIC), this practice disproportionately hurts minorities and low-income groups.
- Artificial Intelligence: “AI is built upon available data and a series of mathematical and computational assumptions. It risks perpetuating and possibly magnifying existing bias,” says Lindley-Myers. As insurers increase their dependency on artificial intelligence, understanding and eradicating inequality in predictive modeling and machine learning is more important than ever.
How to protect yourself from unfair discrimination in insurance
You could be paying more than you should for insurance because unfair discrimination. Here are some steps to reduce your premiums or contest discrimination if you experience it.
- Shop and compare quotes: While you may be experiencing unfair discrimination with one provider, you can shop around to get better rates with a different provider at the same coverage. This step is crucial to ensure you’re not paying more than you should. If you feel that you’re being priced unfairly,
- Research company’s reviews and customer satisfaction: Reading customer reviews and checking with insurance rating agencies like JD Power with ranks companies based on customer satisfaction can better understand how an insurance company treats its customers.
- Talk to friends and relatives who have experience with the insurance company of interest: Speaking to your friends and family can help you determine if an insurance company is right for you or if they’ve had negative experiences with specific providers.
- Apply for discounts and programs that lower your rates: Whether you are applying for home, auto, or renters insurance, there is a discount for everyone. Take advantage of any programs or discounts that may help you lower the cost of your insurance.
- File a complaint with your state’s insurance department: Your state’s insurance department can help you if you run into issues with your company or an agent of a particular company. Examples include excessive charges, unfair premium increases, and claim denials.
The bottom line
Unfair discrimination in insurance is prohibited federally. As frustrating as it might be to experience, insurance is still crucial and, in some cases, mandated by law.
While groups like the NAIC work to combat these issues, you can still take action like shopping around and seeking discount opportunities. More importantly, it is crucial to know the resources at your disposal if you are a victim of unfair treatment, like your state’s insurance department.