Discriminatory pricing: Exploring the 'ethnicity penalty' in the insurance market

Discriminatory pricing: Exploring the ‘ethnicity penalty’ in the insurance market [ 2 mb]

Insurance is an essential financial product that gives consumers protection when things go wrong. But how the price of insurance is calculated is complex, and it is not always clear if the price is fair. 

Our exploratory research found that people of colour may be paying £250 more a year for their car insurance than White people. We found that in areas where there are large communities of colour there are, on average, higher insurance prices. We’ve termed this the ‘ethnicity penalty’ in the car insurance market. 

While there are a range of factors that influence insurance pricing, we’re concerned that our research suggests that areas with large communities of colour may be identified as more risky, even when objective risk factors are controlled. As markets evolve and the use of ‘big data’ and algorithms in setting prices becomes more prevalent, there is a risk that these inequalities are perpetuated and amplified. 

The Financial Conduct Authority needs to investigate this issue, and make sure that no one is paying an ethnicity penalty in the insurance market.