Is the insurance industry's blatant redlining finally being reigned in?

[fryar]

So if companies can make money by selling cheap insurance in Detroit, why don't they? Crap, insurance companies are spending billions of dollars in advertising trying to drum up business. If they could sell dirt cheap insurance to a few hundred thousand Detroiters, that would be worth it, wouldn't it? Or are you implying that every insurance company out there hates black people more than they love making money?

Because the market is plain broke.

Competition and evaporating profits should force the actors to innovate. Solely Progressive Insurance is ahead of this industry's antiquated curve, offering the no-brainer of plopping a small device onto my car's ODB that transmits data points that are actually relevant gauging my riskiness to Progressive via ubiquitous cell phone towers. How often do I brake hard? How often do I drive more than 75? How much do I drive, and is it during times that are more accident prone? I can pull this data up on the web, and see the percentage of savings that Progressive has calculated as appropriate based on these results. All they did was take a commodity part, a Davis Car Chip. With all due respect to them, not actually that hard.

Progressive claims they're not tracking your location with GPS. Everyone is entitled to disbelieve them, or for other reasons choose to maintain the privacy of their driving habits, naturally. But in this age of data crunching, it is intellectually lazy to hold on to the post office as a highly significant predictor of riskiness for car insurance, when it is simply a convention that dates back to an era of data scarcity [[and an inability to efficiently process large data sets).

[fryar]

The debate we're having is pretty academic - I don't mean to imply that the society I live in systematically discriminates against me due to superficial characteristics beyond my control - indeed, I know and accept that the system will gouge me a bit if i choose to live in Detroit. I also don't take Det_ard or Ferntruth to imply that I am comparing this marginal financial "inconvenience" to the historical systemic discrimination against minorities. Just to set that straight. Because, for what it's worth, before I actually googled redlining and checked out Wikipedia, I was with Det_ard and Ferntruth on this, thinking that redlining carries all manner of connotations that in this instance don't apply, that here we have a situation where broad brush strokes are accepted for the sake of administrative convenience, but it's at a minimum not rhetorically effective to refer to this issue as redlining.

No, that actuarial reality based on claims. For someone like you that rarely drives it would be nice if there were a policy that was based on verifiable mileage driven. Actually, I've heard something about that recently but I don't know if it exists around here.

I'll resurrect my old car sharing thread because you're tangenting directly into my little car sharing obsession.

But as my response relates to this thread, the redlining is based on my former post office, not on the amount that I drove. The insurance co's failure to take into account factors that *actually* are indicative of my riskiness in favor of an easily accessed charcateristic of mine that correlates to riskiness without causality was just a cherry on top if you will. We have computers now, and ODB ports, and cell phone networks - they could try to assess my riskiness, but they settle for the administrative convenience of a false positive while hiding behind conventions settled upon in the age of pencils, paper and slide rules.

I'm not *just* whining about that, Progressive later did make an effort, which might be the system you heard about, but I'm trying not to threadjack too much.

Hardly an example of redlining.

It's looking to me like it is, though, actually.

To once again refer to Wikipedia as a neutral arbiter representative of the English-speaking world's consensus, an expanded version of my earlier quote:

Redlining is the practice of denying, or increasing the cost of services such as banking, insurance, access to jobs, access to health care, or even supermarkets to residents in certain, often racially determined, areas. [[...) It describes the practice of marking a red line on a map to delineate the area where banks would not invest; later the term was applied to discrimination against a particular group of people [[usually by race or sex) no matter the geography.

So the term has evolved from the specifics of FHA mortgage underwriting policies for certain geographical areas based on race to something no longer necessarily linked to geography or race.

Sounds like a pretty slippery slope. Apparently, it is.

Many believe policies of credit card companies such as American Express that reduce credit lines of individuals that make purchases at retailers frequented by so-called "high-risk" customers to be akin to redlining.

Perhaps I should have said that apparently, many believe it to be so [[a slippery slope), to match Wikipedia's less assertive formulation. But really, what are you left with, if geography and race are eliminated from the equation of what is required in order to qualify for the term "redlining?" Discrimination? Profiling?

The key difference between modern car insurance redlining and "old school" redlining is that my post office is not a legally protected class. It is just as much a falsehood to propose that
a)my riskiness can be determined on the basis of the statistical correlations between riskiness and having my post office; as it is to propose that
b)my riskiness can be determined on the basis of statistical correlations between riskiness and having my race, creed, sexual orientation, and so on.

No, that actuarial reality based on claims.

Challenge Question: Does anybody know whether the practice of redlining could have been supported by statistical correlations between being black and defaulting on one's mortgage? Society certainly didn't treat blacks with kid gloves back then. It should be a wonder if blacks didn't default on mortgages more often.

[Hermod]

Challenge Question: Does anybody know whether the practice of redlining could have been supported by statistical correlations between being black and defaulting on one's mortgage? Society certainly didn't treat blacks with kid gloves back then. It should be a wonder if blacks didn't default on mortgages more often.

I think it was more that the "red-lined" areas were considered places where the home prices would decline and the security for the mortgage [[the home being mortgaged) was not a "secure" asset. Areas rapidly becoming black would be experiencing declining home prices. As a result, mortgages would be disapproved, carry a higher mortgage rate, or be subject to a very high down payment requirement. That would apply whether or not the individual borrower was black or white.

[fryar]

Interesting. If it is the property securing the loan that is being "profiled" on the basis of its neighborhood, we do have a difference between that and what is happening with car insurance, where I am being profiled on the basis of my neighborhood.

Not my car. Presumably. The formula used to compute my rate would likely reveal whether it is I being profiled on the basis of where I sleep, or my vehicle on the basis of where it parks.

Which is an interesting technicality, in my mind. It's probably easier to demonstrate that this is redlining if the vehicle is being profiled on the basis of geography, although it is a moveable asset.

If I am being profiled on the basis of geography, that's just plain lazy on the part of the insurance industry. Perhaps due to high barriers to entry in the industry, it's surprising that there are not more alternatives to this very dated approach on the market.

[Detroitej72]

No.

Detroiters pay more. Insuring Detroiters costs more.

Insuring Corvettes costs more than insuring Civics. Insuring smokers costs more than insuring non-smokers. Charging more for car insurance in Detroit is actuarially sound.

Then explain what a person's credit rating has to do with price determination? There is no connection, but I'm sure an apoligist for the insurance industry like you has an answer.

[jt1]

No.

Detroiters pay more. Insuring Detroiters costs more.

Insuring Corvettes costs more than insuring Civics. Insuring smokers costs more than insuring non-smokers. Charging more for car insurance in Detroit is actuarially sound.

Explain the obvious paradox:

Insurance companies are greedy blood-sucking parasites who'll do anything for profits.
Insurance companies charge Detroiters more than actuarially indicated.
Yet no insurance companies are competing and marginally lowering prices to capture these huge excess Detroit insurance profits.
And no non-profit community or government group has stepped in to "help" relieve the insurance companies of their excess millions of profits despite several decades of baseless "gouging" and "redlining" accusations.

Oh, sure, it's all a huge conspiracy. Go with that. It's MENSA-worthy.

Then explain why I was quoted about $100/month for coverage from one company and over $1000 from another. All things on my side were equal.

Your premise implies that the rates are being based upon real actuarial data. The simple fact is that to be an insurer in Michigan you have to offer coverage to everyone. The State, however does not check any actuarial data or contest any rates. The larger companies like Allstate and State Farm set outrageous prices and the state rubber stamps them. This allows them to either [[a) not cover Detroiters or [[b) make a very large profit off residents if they choose to use their services.

If they set rates on real actuarial data then fine but I can assure you they don't otherwise there would be no way that companies could vary so drastically.

- Now queue up your condescending retort.

[JBMcB]

Your premise implies that the rates are being based upon real actuarial data.

Your premise implies that every company uses the same algorithms and factors in coming up with their actuarial tables.

If they set rates on real actuarial data then fine but I can assure you they don't otherwise there would be no way that companies could vary so drastically.

See above.

[1KielsonDrive]

Aside from AIG, what other insurer received a bailout?

The bailouts filtered right throughout the whole system. Insurance companies are pools. Most companies pool their resources as well as their losses. In other words, they share their bets - their gambles. Little Bumfuc* Insurance Company from Hell MI can't hope to cover losses from a major event. They pool with bigger and bigger companies from all over the world. What do you think Lloyd's of London is? It's a pool, not a single corporate entity. If you want a lengthy, technical explanation, you'll have to read up, I don't have time. But that's the basic idea.

[1KielsonDrive]

So if companies can make money by selling cheap insurance in Detroit, why don't they? Crap, insurance companies are spending billions of dollars in advertising trying to drum up business. If they could sell dirt cheap insurance to a few hundred thousand Detroiters, that would be worth it, wouldn't it? Or are you implying that every insurance company out there hates black people more than they love making money?

I'm able to state my own case without you putting words in my mouth. That's your inference, not mine.

[Locke09]

Well, since insurance is mandated in Michigan, we should have a right to see the algorithms and the actuarial data.

I don't think the answer is cheaper insurance with greatly reduced coverage. I think the answer is to repeal the mandatory No-Fault insurance requirement. As long as we are a captive audience, we will all have higher than necessary insurance rates.

And competition does not necessarily result in lower prices. There is a location I pass daily with three different gas stations - two across the street from each other and the third half a block away. They keep their gas prices synchronized. And I do mean synchronized. When one changes the others change within minutes.

[bartock]

The bailouts filtered right throughout the whole system. Insurance companies are pools. Most companies pool their resources as well as their losses. In other words, they share their bets - their gambles. Little Bumfuc* Insurance Company from Hell MI can't hope to cover losses from a major event. They pool with bigger and bigger companies from all over the world. What do you think Lloyd's of London is? It's a pool, not a single corporate entity. If you want a lengthy, technical explanation, you'll have to read up, I don't have time. But that's the basic idea.

Insurance companies invest their premiums. They definitely benefitted from the bailout.

[JBMcB]

the insurance industry makes record profits even after bailouts from you and I

The bailouts filtered right throughout the whole system.

Ah, so a company has received a bailout if they have somehow profited by the bailout of some related company? Got it.

I'm able to state my own case without you putting words in my mouth. That's your inference, not mine.

A fascinating and brilliant point that completely ignores the question behind it. Care to answer that one?

[1KielsonDrive]

Ah, so a company has received a bailout if they have somehow profited by the bailout of some related company? Got it.
I'm glad you understand. Thank you.


A fascinating and brilliant point that completely ignores the question behind it. Care to answer that one?

I answered it. You ignored it. Thank you.

[jt1]

Your premise implies that every company uses the same algorithms and factors in coming up with their actuarial tables.



See above.

So your contention is that the algorithms used by actuarials at difference companies can result in a difference that is 10 fold between insurance companies?

If that is the case then I have a few questions:

1. Why don't we see these anomalies in other cities/regions in the state? Why is a 10 fold difference only common place in Detroit.

2. If the acturial data and algorithms may vary by 10 fold then wouldn't it seem logical that the Michigan OFIS should audit some of them to ensure that there is nothing that is illegal in the algorithms [[demographic infomration that should not be used) - [[Granted this calls into the incompetence of Michigan OFIS and is not strictly on the insurance companies).

3. What factors would one company use that others ignore that cause a difference so drastic? I could understand and support variances of 50% but a coute of $100 from one company and $1000 from another would never be derived from actuarial data. If you believe it can be I would appreciate you citing which variables/weighting that may vary between companies to justify this drastic difference.

[JBMcB]

So your contention is that the algorithms used by actuarials at difference companies can result in a difference that is 10 fold between insurance companies?

Sure. One of the largest factors in geographic pricing in car insurance is car theft rates. Since the insurance company basically eats the cost of the whole car, it costs them a *lot* [[as it does when you get in an accident with an uninsured driver) Detroit has an incredibly high rate of car theft [[over 4x the national average) If an insurance company just lumps all the zip codes together with Detroit as a whole, you're insurance is going to be pretty high. If you live in an area of Detroit with relatively low incidents of car theft, and an insurance company is that granular in their analysis, you'll get a much better rate than in a different area.

Several other factors could weigh in as well - accident rates, rates of uninsured drivers, and an individual company's history of insuring a particular area. These can all be grouped in several different ways.

When we bought our house we moved less than one block away from our apartment. That one block, however, crossed not only a city but a county border as well. Our car insurance shot up 40%. We looked around and found several other insurance companies with rates comparable to what we had at the apartment. I understand it isn't a order of magnitude difference as other people had seen, but when you're dealing with an area as large as Detroit, I think there's room for a lot of variation in determining rates like this.

[jt1]

Sure. One of the largest factors in geographic pricing in car insurance is car theft rates. Since the insurance company basically eats the cost of the whole car, it costs them a *lot* [[as it does when you get in an accident with an uninsured driver) Detroit has an incredibly high rate of car theft [[over 4x the national average) If an insurance company just lumps all the zip codes together with Detroit as a whole, you're insurance is going to be pretty high. If you live in an area of Detroit with relatively low incidents of car theft, and an insurance company is that granular in their analysis, you'll get a much better rate than in a different area.

Several other factors could weigh in as well - accident rates, rates of uninsured drivers, and an individual company's history of insuring a particular area. These can all be grouped in several different ways.

When we bought our house we moved less than one block away from our apartment. That one block, however, crossed not only a city but a county border as well. Our car insurance shot up 40%. We looked around and found several other insurance companies with rates comparable to what we had at the apartment. I understand it isn't a order of magnitude difference as other people had seen, but when you're dealing with an area as large as Detroit, I think there's room for a lot of variation in determining rates like this.

So you think it is strictly a matter of different factors used by their actuarials and arbitrary boundaries drawn by individual insurance companies? You honestly don't believe that some companies do not want to do business in Detroit but are forced to offer coverage to residents. By inflating the prices [[without disclosing their actuarial data) they can effectively take themselves out of doing business in the city without facing any issues by the state?

Maybe I just don't have as much faith in the integrity of businesses, especially insurance companies, as you do. Until the state or the insurance companies are willing to supply their actuarial data to consumers I cna only assume the ten fold difference is companies simply trying to avoid doing business in the city.

The true responsibility falls on the state to ensure that the submitted rates are supported by real actuarial data. Sadly, the leadership at OFIS has stated to me that they do not take one look at the data. They simply rubber stamp approvals if a company 'offers' coverage throughout the entire state.

[JBMcB]

You honestly don't believe that some companies do not want to do business in Detroit but are forced to offer coverage to residents. By inflating the prices [[without disclosing their actuarial data) they can effectively take themselves out of doing business in the city without facing any issues by the state?

Companies care about making money. First and foremost. If they are publicly traded, they have to by law. I've yet to work for a company who puts some prejudice or bias above the desire to make money. Some insurance companies think that it costs a lot more to insure people who drive in Detroit than others. Is that assumption completely out of the realm of possibility?

I don't have a problem with some state overview board reviewing the process that insurance companies use to come up with their actuarial tables, as long as the review is impartial.

[Wingnatic]

When you have '' insurance execs '' setting the yearly rate for the catastropic fund that we all pay per vehicle , maybe its time to have a State agency approving any rate hikes just like the utility companies have to go before a board and present proof of why they need to raise rates . Its time these crooks have someone looking over their shoulders .

[ferntruth]

Redlining refers to charging higher rates as well. And yes, it still exists. And yes, Detroit is being redlined.

Sorry, but you wrong on both counts.
As I work in the industry, I think I know of what I am speaking. Redlining is the refusal to sell within a certain area and is illegal.

Charging higher rates is based on the loss rates within a certain area. Being in NY, you may not have noticed but Detroit has a problem with auto theft, home invasion/ robbery and the lack of adequate police response to these crimes. This all adds up to higher rates.

Want lower rates? Then you need to get a handle on these issues.
Believe me, the company I work for does not make money selling in the Detroit market. However, if we want to do business in Michigan, then we have to live and deal with it.

[ferntruth]

When you have '' insurance execs '' setting the yearly rate for the catastropic fund that we all pay per vehicle , maybe its time to have a State agency approving any rate hikes just like the utility companies have to go before a board and present proof of why they need to raise rates . Its time these crooks have someone looking over their shoulders .

It's called the state insurance commission. Every rate table has to be submitted and approved.
The MCCA sets the fund rates, not "insurance execs".

Since the no fault law was passed in MI, voters have turned down several attempts at limiting medical and getting premiums under control.

You can always choose to drive without insurance- that seems to be quite popular in is area. Sarcasm intended

[iheartthed]

Sorry, but you wrong on both counts.
As I work in the industry, I think I know of what I am speaking. Redlining is the refusal to sell within a certain area and is illegal.

Charging higher rates is based on the loss rates within a certain area. Being in NY, you may not have noticed but Detroit has a problem with auto theft, home invasion/ robbery and the lack of adequate police response to these crimes. This all adds up to higher rates.

Want lower rates? Then you need to get a handle on these issues.
Believe me, the company I work for does not make money selling in the Detroit market. However, if we want to do business in Michigan, then we have to live and deal with it.

Blah blah blah, just because you pour coffee in an insurance broker's office doesn't make you an expert. The bottom line is that what you originally said was not the complete definition of redlining. I corrected you. And someone even linked to sources to corroborate my correction to your incorrect statement.

[Hermod]

Blah blah blah, just because you pour coffee in an insurance broker's office doesn't make you an expert. The bottom line is that what you originally said was not the complete definition of redlining. I corrected you. And someone even linked to sources to corroborate my correction to your incorrect statement.

You are down to arguing semantics. For the sake of our discussion here, we can use a very broad definition of "redlining" to include any differential in insurance rates based on arbitrary political or postal boundaries on a map.

The discussion than can turn as to whether or not this insurance "redlining" is justified on a legal basis, whether or not it is justified on an actuarial basis, and whether or not it is "moral"

If your home there in Michigan suffers damage from a windstorm, your homeowners insurance will cover the loss,

In the zip code in which I live, damage caused by any type of wind is not covered under homeowners insurance. I have to purchase a separate windstorm policy which is very expensive and has a high deductible. I live within a quarter mile of the Atlantic Ocean in Florida. Should your homeowners insurance rates include my hurricane risk? By the same token, should my homeowners insurance rates include your risk of theft/robbery/vandalism of your home in Detroit?
.

[erikd]

Sorry, but you wrong on both counts.
As I work in the industry, I think I know of what I am speaking. Redlining is the refusal to sell within a certain area and is illegal.

Charging higher rates is based on the loss rates within a certain area. Being in NY, you may not have noticed but Detroit has a problem with auto theft, home invasion/ robbery and the lack of adequate police response to these crimes. This all adds up to higher rates.

Want lower rates? Then you need to get a handle on these issues.
Believe me, the company I work for does not make money selling in the Detroit market. However, if we want to do business in Michigan, then we have to live and deal with it.

Ferntruth,

Redlining is not just the outright refusal of providing insurance, mortgages, etc, but also any discriminatory practices in these situations.

The Merriam-Webster definition of "redline" includes "to discriminate against in housing or insurance"
http://www.merriam-webster.com/dictionary/redlining

The real debate is not about semantics or technical definitions, but rather the discriminatory practices used by insurance companies to set rates.

For the sake of argument, I will stipulate that Detroit has a higher rate of uninsured drivers, and a higher rate of car theft, which justifies the higher premiums for PLPD and comprehensive auto insurance. However, Detroit has a lower rate of auto accidents, compared to many suburbs, which should be reflected by lower collision premiums. It is well documented that the intersections with the most auto accidents are in the suburbs, not the city. It is a fact that a driver is more likely to get into an auto accident in many suburban areas as opposed to the city.

Considering the fact that Michigan has a no-fault auto insurance law, and the fact that PLPD, comprehensive, and collision coverage are all rated independently of one another, there is no justification for collision coverage being more expensive in a low-risk accident area of Detroit than and extremely high-risk accident area of the suburbs.

[gnome]

Fryer, it has been a pleasure reading your well-reasoned and articulate posts.

[iheartthed]

You are down to arguing semantics. For the sake of our discussion here, we can use a very broad definition of "redlining" to include any differential in insurance rates based on arbitrary political or postal boundaries on a map.

The discussion than can turn as to whether or not this insurance "redlining" is justified on a legal basis, whether or not it is justified on an actuarial basis, and whether or not it is "moral"

If your home there in Michigan suffers damage from a windstorm, your homeowners insurance will cover the loss,

In the zip code in which I live, damage caused by any type of wind is not covered under homeowners insurance. I have to purchase a separate windstorm policy which is very expensive and has a high deductible. I live within a quarter mile of the Atlantic Ocean in Florida. Should your homeowners insurance rates include my hurricane risk? By the same token, should my homeowners insurance rates include your risk of theft/robbery/vandalism of your home in Detroit?
.

I don't think we're arguing semantics. Ferntruth said that Detroit does not get redlined. By the text book definition of redlining, Detroit does indeed get redlined, so his statement was false. Ferntruth [[what an ironic name) then tries to save face by fudging the definition of redlining to legitimize his previous assertion that Detroit does not get redlined. What he should have just done is admit that he was not entirely clear on the definition of redlining.

As for whether Detroit's rates are fair or not... Well, first I'll say that it does make more sense to charge higher rates for higher risk. If your house near the beach is more at risk of being blown into the ocean than a house five miles inland, then yes you should pay more to insure it. If your car parked at your house in Detroit is at a higher risk of being stolen than the same car parked in Livonia, all other risks being the same, then yes you should pay more to insure it in Detroit. But I get the sense that the difference in price of premiums charged by insurance companies to Detroit versus the suburbs is not parallel to the difference in risk.

Just for fun, while sitting here typing this I quoted a hypothetical 2012 Ford Fusion in the 48227 zip code on Progressive.com. Progressive quoted me a 6-month policy for $3,047.50. Over the course of a 5 year auto loan I would pay $30,000 for insurance and roughly $21,000 to buy the car with a loan rate of 4%. Pause. Just in case we aren't on the same page yet let me translate... The car insurance costs more than the car. In that light, I think Detroiters who choose not to buy insurance are making rational decisions about irrational insurance rates.