Fellows Blog: Racial Injustice in Auto Insurance Rates

By Jaidyn Nix, Southern University student & Louisiana Progress College Fellow

During the 2022 Legislative Session, I focused on traffic enforcement reform policy in Louisiana. Traffic enforcement reform is important for most people in Louisiana, but it’s an especially pressing matter for Black drivers and the Black community. My earlier research led me to my current focus: auto insurance. 

I found that, like traffic enforcement, auto insurance rates have a disproportionately negative impact on Black drivers and the Black community. Drivers in every state are required by law to have auto insurance, which means the way auto insurance rates are determined impacts everyone. Insurers often rely on non-driving factors, like credit ratings, to determine premiums. 

Currently, Louisiana has the second-highest auto insurance rates in the country and the second-highest poverty rate. In 2023, the average annual premium rate for auto insurance in the state was $2,546, which is $800 more than the national average. And while rates are already high for the average driver in Louisiana, they can be even more expensive for Black drivers. 

In most states, insurance companies determine a driver's monthly rate based on their credit score, which might seem like a reasonable metric at first. But it turns out that it’s not. Minority households generally have less wealth and thus worse credit scores. That lower wealth is due to many reasons, including lending policies that have historically favored white borrowers. 

Black communities continue to deal with multiple roadblocks, on top of the many historical obstacles. For example, redlining and property covenants prevented Black people from living in areas with a large White population. 

A large share of minority households are living from paycheck to paycheck and can’t build good credit. In Louisiana, auto insurers rely on credit history more than they do on driving history when determining rates. A study by the Consumer Federation of America found that a driver with a high credit score who was also convicted of a DUI would pay $905 less than a driver with poor credit and an excellent driving record. These policies are inherently placing more strain on communities of color.

I looked into rates and policies in other states to see how they have combated these issues. Legislatures in California, Massachusetts, Hawaii, and Michigan banned using certain non-driving factors such as credit score to set pricing. Louisiana, on the other hand, passed tort reform a few years ago in hopes of lowering the auto insurance rates. But that failed to address the problem. Now supporters of that failed reform are stopping real reform from happening. 

In order for Louisiana to provide relief to the communities that are hurting the most from these discriminatory policies, we need to eliminate non-driving factors from affecting insurance