People of colour still paying £250 more on car insurance per year than white people
People of colour continue to pay hundreds of pounds more each year for their car insurance compared to white people, according to Citizens Advice research.
One year on from first uncovering people of colour paying £250 more for car insurance, Citizens Advice is once again shining a light on what it calls an ‘ethnicity penalty’ after the FCA has failed to take action.
The charity analysed the car insurance costs of over 15,000 people it helped in 2022, and found firms to be charging people of colour 40% more than white people. For Black customers, this rises to charging almost 49% more, or £300 more, than for white customers. In total, Citizens Advice estimates people of colour paid £180 million more on car insurance in 2022, compared to white people.
With household bills rising across the board, the charity estimates over one million people cancelled their car insurance last year amidst pressure from rising bills. Worryingly, people of colour were three times as likely to cancel their car insurance than white people. With the cost-of-living crisis disproportionately impacting people of colour, the ethnicity penalty is compounding this problem.
Citizens Advice says the FCA needs to step up and take the reins, with monitoring and clear enforcement action if car insurance firms cannot explain these ethnicity pricing differences. The charity says these differences show people of colour may be subject to indirect discrimination, which is covered by the Equality Act. This means that even if firms don't gather data on ethnicity or use ethnicity data when determining prices, their pricing decisions could still be considered discriminatory given the link Citizens Advice has uncovered between ethnicity and insurance costs.
Dame Clare Moriarty, Chief Executive of Citizens Advice, said:
“This is a truly worrying link between ethnicity and insurance costs, but one year on and the FCA is still nowhere to be seen.
“While many people are battling cost-of-living pressures, it is shocking that people of colour are also facing higher car insurance costs because of their ethnicity.
“This ethnicity penalty is an expensive and unfair burden on people of colour. It’s time for insurance companies to stop hiding behind algorithms and for the FCA to get off the sidelines and take action.”
Notes to editors
More than 68,000 people who came to Citizens Advice for help with debt completed a Budget Planner in 2022. The Budget Planner is a detailed examination of the finances of someone in debt and considers their income, expenditure and any existing debts they hold. Of those 68,000 clients, 15,000 debt clients who reported the cost of their car insurance were included in the analysis.
The budget planning data of the 15,000 debt clients were used to develop two multiple regression models testing which demographic variables had a significant impact on monthly car insurance expenditure, including ethnicity. We then conducted an ANOVA test and subsequent Tukey-HSD tests on the regression models. The Tukey-HSD tests returned mean estimates of the cost of car insurance for people of colour, white people and the different individual ethnicity groups. These estimates were used to calculate that people of colour were paying £20.73 per month or £248.71 per annum more on average for their car insurance compared to white people.
Citizens Advice used data from the FCA Financial Lives Survey 2020 as an estimation of the number of motor insurance policy holders in the UK, including breakdowns of policy holders by ethnicity. The number of people of colour with car insurance was multiplied by the proportion of people of colour living in diverse areas to get an estimated 725,000 people of colour impacted by the ethnicity penalty.
This 725,000 people of colour affected by the ethnicity penalty was multiplied by the individual ethnicity penalty to get the total ethnicity penalty of £180 million.
Walnut Unlimited conducted an online poll of 6,000 adults in the UK conducted for Citizens Advice. Fieldwork was conducted between 9th January – 8th February 2023. The figures have been weighted and are representative of all UK adults (18+). An additional representative sample of 500 adults from Black, Asian and diverse ethnic backgrounds were surveyed, making 1,369 in total, which were weighted separately and are representative of all UK adults (18+) from Black, Asian and diverse ethnic backgrounds. Walnut’s social research team is a member of the British Polling Council and abides by its rules. When asked, ‘In the last 12 months, have you cut back or stopped spending on any of the following products or services as a result of rising costs?’, 3% of all respondents who had car insurance reported that they had stopped spending. For respondents of colour who had car insurance, 8% reported stopping spending. For white respondents who had car insurance, 2% reported stopping spending.
The estimated over one million customers who cancelled their car insurance was calculated using the FCA Financial Lives survey estimate of 36 million motor insurance policy holders in the UK. This 36 million estimate was multiplied by the proportion of polling respondents who reported stopping spending on their car insurance in the last 12 months (3%).
‘Is the cost of living crisis a racial crisis?’- wearecitizensadvice.org.uk/is-the-cost-of-living-a-racial-crisis-39090d85e428
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