Washington, D.C. — The Consumer Federation of America (CFA) and Consumer Reports (CR) applauded Colorado Governor Jared Polis and state Insurance Commissioner Michael Conway upon the signing of insurance reform legislation targeting practices that disproportionately harm communities of color, or people on the basis of their sex, sexual orientation, or gender identity. Requiring insurers to demonstrate that their use of external data and complicated algorithms do not discriminate on the basis of these classes will help ensure that Coloradans do not overpay for coverage or find themselves unfairly targeted in their dealings with insurance companies simply because of who they are.
“This is a victory for fairness in insurance markets,” said Douglas Heller, CFA’s Insurance Expert. “Insurers hide behind their algorithms and a hollow promise that they never consider a customer’s race, but their data sources and models can perpetuate and entrench structural racism and other forms of unfair discrimination. This law takes direct aim at insurance practices that have unfair and illegal outcomes, irrespective of the intention behind the practice.”
“Our research has shown that insurance companies’ use of non-driving rating factors, such as a customer’s credit score or job title, penalizes people based on their socio-economic status rather than assessing their driving safety,” said Chuck Bell, programs director for Consumer Reports. “Under this new law, insurance companies will have to prove that their pricing strategies don’t result in unfair discrimination against otherwise good drivers. Colorado now has the tools it needs to end discrimination and ensure auto insurance is priced fairly so that everyone can afford the coverage they need.”
The law, SB 169, (sponsored by Senator Janet Buckner with strong support from Insurance Commissioner Conway and the Division of Insurance) identifies a number of classes – including race, ethnicity, gender, gender identity and expression, and sexual orientation – that must be protected from discrimination in the “marketing, underwriting, pricing, utilization management, reimbursement methodologies, and claims management in the transaction of insurance.” The law requires insurance companies to change practices when unfair discrimination results from algorithms, models, or the use of external data sources. The law instructs the Insurance Commissioner to conduct a process with input from companies and consumers in order to adopt rules to ensure that insurers’ use of data and models does not result in harmful discrimination, while giving companies the opportunity to mitigate any biases in their algorithms.
Auto insurers use numerous non-driving characteristics, such as credit history, ZIP code, gender, education, occupation, homeownership status, and marital status to calculate premiums. These factors tend to have a disproportionate impact on people of color or other protected classes, and perpetuate systemic biases. CFA conducted research using auto insurance premium data acquired from Quadrant Information Services, LLC, and found that Black, Latinx, and Indigenous Americans have worse credit history on average than white Americans.
Using premium quotes for a 35-year-old with a perfect driving record, from ten of the largest insurers in Colorado for every ZIP code in the state, CFA found that:
- A driver with EXCELLENT credit pays an average annual premium of $592.11 for basic auto insurance coverage;
- But if that driver has FAIR credit, their premium rises to $785.67, a 33% credit penalty; and,
- If that driver has POOR credit, they see the average annual premium increase by 72% to $1,019.59 for the same coverage, even if they have a perfect driving record.
While this bill does not prohibit the use of credit history in setting insurance premiums, it bans insurers from using any external consumer data or information, algorithms, or predictive models that disproportionately harm members of any protected class. If insurers want to continue to use credit history in Colorado, they will now have to ensure that it does not disproportionately harm people of color and take steps to mitigate any unfair impacts.