CFA News

CFAnews Update – January 31, 2023

What Might a Concerned Regulator Do About Systemic and Unintentional Biases in Insurance Markets? Collect and Test the Data

New CFA Report Aims to Help Home Buyers Get a Better Deal

Junk Fee Blog Series Part 4: Airline Fees

What You Need to Know About California’s Consumer Privacy Laws

What Might a Concerned Regulator Do About Systemic and Unintentional Biases in Insurance Markets? Collect and Test the Data

By: Michael DeLong, Insurance Research Advocate

For a long time, consumers (and groups like the Consumer Federation of America) have been raising alarms about insurance company practices that disproportionately harm Black and Brown drivers around the country. Consumers have a right to be treated without bias or unfair discrimination in every market. Still, the need is particularly acute for auto insurance, since virtually every driver in the nation is required to buy coverage from insurance companies. Our research and others’ work in recent years have shown several ways in which insurance companies and the legacy of structural racism in the U.S. leave people of color with worse outcomes – whether it comes to access to the highest quality coverages, the premiums that are charged, or the claims handling process – than would be expected of a market free from unfair discrimination.

However, the industry has long denied even the possibility that institutional bias affects insurance markets and has fought reform efforts at every turn, usually claiming that (notwithstanding CFA’s research) there is no evidence of racially biased outcomes in the insurance market. And that leads us to the important work that is percolating in a few insurance departments around the country (and the need for other state regulators to start testing these insurance industry arguments).

The District of Columbia Department of Insurance, Securities, and Banking is expected to issue a data call requiring insurance companies to provide information on their underwriting, rating, and claims payments that could shed light on the nature and extent of unintentional bias in the auto insurance market. The Department is working with the algorithm auditors at O’Neil Risk Consulting and Algorithmic Auditing, founded by Weapons of Math Destruction author Cathy O’Neil, to conduct the review.

The call will collect information on the following topics:

  • Insurance quotes—whether certain people or groups of people are being quoted higher prices
  • Underwriting decisions—whether certain groups are more likely to be rejected for coverage, or given more expensive insurance options
  • Premiums—whether certain people or groups are paying higher premiums
  • Loss ratio—whether certain groups are getting unfairly charged higher premiums compared to the insurance losses they sustain

Why should consumers care about this? Because discrimination and racism are rampant in auto insurance, but so far auto insurance companies have fought hard against transparency and accountability. For years consumer advocates and racial justice groups have called for investigations of bias and discrimination in insurance. Consumer Federation of America’s investigations have found considerable bias in auto insurance premiums. Moreover, bias doesn’t have to be explicit to harm consumers. An algorithm or practice can be unintentionally biased if it uses bad data, which can result in Black consumers paying higher premiums or being unable to get affordable insurance at all. And the Department’s data call will not only allow us to look at the whole auto insurance market in Washington, D.C., but determine how serious the abuse is and decide what to do about it.

While CFA offered some important suggestions for improving the data call, we applaud the Department’s efforts to collect data on unintentional bias in auto insurance and to determine how to reduce this bias. This data call is a sign that the District of Columbia insurance regulators, like the Colorado Division of Insurance, which is developing rules for bias testing of the state’s insurance companies, are taking on the challenge of rooting out the legacy of structural racism and other institutional biases from the insurance market.

Consumer Federation of America submitted comments on how the D.C. data call can be made even better. First, the Department could use the standardized data request that the National Association of Insurance Commissioners developed to collect information, which will make the process simpler and more familiar to the insurance companies when they report data. Second, the Department should collect information about various socioeconomic factors that auto insurance companies use in their business models that (according to CFA’s research) often lead to unfair discrimination against certain classes of consumers. These factors include:

  • Someone’s education level (whether they graduated from high school or college);
  • Employment status and their job/occupation;
  • Homeownership status (whether they own or rent their home);
  • Credit information (auto insurers charge safe drivers who have fair credit or poor credit much higher premiums);
  • Whether their car was purchased new or used; and
  • Whether they previously bought minimum insurance coverage or a more robust policy, among others.

Additionally, the Department should collect information about whether insurance claims were flagged for further investigations due to potential fraud, and whether that results in unfair bias.

Finally, we urged the Department to ask insurance companies if any of their divisions maintain information about the race, ethnicity, or national origin of their consumers, and if they do have that information, to provide it. The Department is using an analysis known as BISG (Bayesian Improved Surname and Geocoding) to match demographic data to the insurance data, which is considered an effective and useful way to conduct this type of analysis. However, if insurers – for example, in their marketing divisions – have precise data on the race of their customers, it would allow for an even more precise analysis of the biases in their pricing and practices.

We’ll continue advocating in support of the D.C. and Colorado regulators’ efforts to identify and reform the systems that lead to or exhibit unfair discrimination and bias in the insurance industry. But American consumers need more than two regulators working to fix this problem; there are 49 other state insurance commissioners who need to be challenging insurers in their states to eliminate the unfair and costly impacts of both internal and systemic biases in the insurance system.

New CFA Report Aims to Help Home Buyers Get a Better Deal

Earlier this month CFA released a new report – Buyer Agent Commission Rate Disclosures and Their Implications for Home Buyers and Sellers – to help home buyers purchase the home they want for a lower price. The report analyzes the publication of buyer agent commission rates by over 300 local brokerage and portal websites.

This report follows a 2021 rule from the National Association of Realtors (NAR) requiring hundreds of participating multiple listing services (MLSs) to publish the compensation offered to buyer agents on all home listings.

“The prominent publication of buyer agent commissions can help home buyers avoid well-documented steering by some agents away from low-commission homes to high-commission ones,” said Stephen Brobeck, a CFA senior fellow and author of the report. “Steered consumers may not be shown homes they would have preferred and end up paying higher commissions that are effectively added to the sale price of homes.”

The report found that large firms like Berkshire Hathaway, Sotheby’s, Compass, Hard Hanna, Long & Foster, Crye-Leike, Century 21, and Realty One either never or rarely ever published buyer agent rates. The report also found that websites like Redfin, Zillow, Better Homes and Gardens, and Keller Williams prominently published buyer agent rates on many of the homes for sale listed on their websites. Redfin stood out as a website that also prominently publishes buyer rates on a large majority of homes listed on MLSs.

For home buyers trying to purchase homes at a lower price, CFA recommends that buyers always note the commission rate offered by the listing agent to buyers and urges home buyers to always check to see if their agent is discouraging them from visiting low-commission homes. If there is a rate that is relatively high, CFA recommends buyers ask if a portion of it can be “rebated” to them.

The report also emphasizes that while published buyer agent commission rates can benefit consumers, they’re unlikely to increase price competition due to buyers being unable to negotiate the rates.

“Untying commissions would allow buyers to negotiate rates, encourage sellers to do the same, and provide new opportunities for discount brokers to market their services,” said Brobeck.

Junk Fee Blog Series Part 4: Airline Fees

By: Erin Witte, Director of Consumer Protection

Airlines are the epitome of the “junk fees” practices that draw the ire of consumers nationwide, prompting a comprehensive federal regulatory response. Many amenities and services that used to be standard during a flight now cost a fee, and they add up quickly. In 2021, airlines earned nearly $5.3 billion in baggage fees and $7 million in cancellation and change fees alone.  These staggering figures are drained from the pockets of consumers, often through a pernicious tactic called “drip pricing.”  Airlines bait consumers by advertising a low-ticket fare, then as the consumer spends the time and energy to input their information and click through each page, more and more fees are added on. This deceptive conduct hides the true cost of the transaction, making comparison shopping almost impossible.

Ironically, air travel is one of the few industries that is required to provide up-front information to consumers about mandatory fees through the Full Fare Advertising Rule, adopted in 2011. This rule, however, does not require airlines to provide this same kind of up-front information about “ancillary” or optional fees. Over the years, airlines have created a system that requires payment of a fee for things that many consumers use whenever they travel but because they are considered “ancillary,” airlines are not required to disclose them in the same way. Hiding fees through a drip pricing model makes it almost impossible to comparison shop for airline tickets.

The Department of Transportation (DOT), airlines’ sole regulator, has recognized the reality that many consumers purchase these ancillary services and pay additional fees. It has proposed a rule to expand these fee disclosure requirements for airlines and bring much needed transparency to the sale of airline tickets. If adopted, airlines would be required to disclose more fees earlier in the purchase process. Importantly, the DOT’s proposal would not prohibit airlines from charging any particular type of fee, but instead focuses on ensuring that airlines are more up-front with consumers about how much their air travel will cost. Here are some basic facts about the rule proposal:

Who would have to disclose the fees? Any entity that advertises or sells tickets to consumers in the U.S. (including domestic foreign airlines, ticket agents, and corporate and online travel agencies).

What new fees would have to be disclosed?

    • Baggage fees, including fees for first, second and checked bags;
    • Change and cancellation fees;
    • A statement about whether the consumer can receive a refund if they cancel the purchase within 24 hours; and
    • Family seating fees, including whether the airline charges extra for a passenger to sit next to their child(ren) under the age of 13.

How would fees have to be disclosed? Fees would have to be available “on the first page when a consumer conducts a search,” instead of hidden through links to other pages.  They would also need to be provided to consumers who purchase on the phone or in person.

What happens if they are not disclosed? The DOT has stated that the failure to comply with these provisions would be an unfair and deceptive practice, and the seller would be required to refund the fee and possibly be subject to enforcement action by the DOT.

This would be a welcome change for air travel consumers but may not do enough to effect meaningful change. Here are additional steps we would like to see the DOT undertake relating to air travel fees:

  • Enforce existing rules. Adopting expanded rules is good progress, but unless the rules are enforced, they become meaningless and ineffective. The DOT has brought very few enforcement actions against airlines in the past decade.
  • Prohibit family seating fees. Families should be able to sit together without paying a fee. This is a quintessential junk fee.
  • Require disclosure of all seat reservation fees, not just family seating.
  • Subject large revenue-generating fees to transparency requirements. Airlines are already required to submit fee data to the DOT, and these statistics should likewise be routinely reviewed.

Here is a link to the DOT’s Enhancing Transparency of Ancillary Airline Fees notice of proposed rulemaking. The comment deadline has passed, but the DOT has indicated that it will accept late comments and may reopen the comment period.

Read part 1, part 2 and part 3 of our Junk Fees blog series.

What You Need to Know About California’s Consumer Privacy Laws

By: Emory Roane, Policy Counsel for Privacy Rights Clearinghouse

The California Consumer Privacy Act (CCPA) was far and away the most sweeping data privacy law in the United States when it was passed in 2018, and now five years later it has been significantly amended by the California Privacy Rights Act (CPRA). The CPRA, passed by ballot initiative in November 2020, just took effect in January and, though enforcement is likely to wait until mid-year at least, makes some key changes to the CCPA impacting how businesses collect and use consumer data and what privacy rights are available to consumers.

One of the biggest changes to the CCPA is a tightening up of language around “sales” of personal information. Under the CCPA, only businesses that “sell” personal information were covered, but some businesses argued that they could ignore the law because they did not “sell” but only “shared” information. The CPRA fixes this loophole by explicitly expanding coverage to “sharing” information.

Another major change brought about by the CPRA is a shift in enforcement authority from the Attorney General to a newly created agency – the California Privacy Protection Agency (CPPA). The agency has authority to both write and enforce CCPA implementing regulations and can seek injunctions and civil penalties on behalf of California citizens.

The CPRA also creates a new category of personal information – “sensitive personal information” – which is afforded heightened protections and additional obligations for businesses who choose to collect it. This includes things like Social Security numbers, driver’s license numbers, racial or ethnic origin, religious or philosophical beliefs, genetic data, precise geolocation data, and more. Consumers also have an additional right – the Right to Limit Use and Sharing of Sensitive Personal Information – allowing them to direct businesses not to use or share their sensitive personal information except for absolutely necessary purposes related to providing services requested by consumers.

One final important change to the CCPA is how it can be amended going forward. Since the CPRA was passed through a ballot initiative rather than legislation, any future amendments must either be approved by the voters through an additional ballot initiative or line up with the amendment provision which requires that any legislation agree with the intent and purposes outlined in the CPRA. This “one way ratchet” should help stymie any attempted privacy weakening bills in California legislature – in theory.

Unfortunately there are some shortcomings of the CPRA as well, such as a serious weakening of the definition of “biometric information,” an over-broad security exception for deleting personal data; a weakening of the private rights of action by granting businesses a Right To Cure; the possibility for regulatory backslide with Opt-Out Preference Signals; a lack of fixes for issues inherent in CCPA such as opt-out framework, useless data minimization requirements, etc.

Ultimately these changes make consumer privacy rights somewhat stronger than before but still leave a lot of room for improvement. The newly created Privacy Protection Agency still has to finish drafting CPRA implementing regulations, but should be prepared to start enforcing the law by mid-year. It will be interesting to see what these regulations look like, and what further amendments are made going forward, as consumer groups like Privacy Rights Clearinghouse and Consumer Federation of America continue fighting for stronger protections under this law.

Emory Roane is Policy Counsel at the Privacy Rights Clearinghouse, a CFA member organization based in California. PRC’s materials on the California Consumer Privacy Act can be found here: