’There is a truly worrying link between ethnicity and insurance costs,’ says chief executive

Citizens Advice research, released today (30 March 2023), has revealed that people of colour continue to pay more each year for their car insurance in comparison to white people.

An analysis of motor insurance costs found that, per year, firms were charging people of colour 40% more than white people, with this rising to almost 49% more for black customers.

Citizens Advice initially called for the Financial Conduct Authority (FCA) to act last year after a year-long investigation discovered a “worrying link” that indicated people of colour were paying £250 more a year on average for car insurance than white people, despite accounting for gender, age and income.

At the time, Citizens Advice coined this as an ‘ethnicity penalty’ among the motor insurance industry.

For its latest research, the charity analysed car insurance costs for the 15,000 people it provided advice to in 2022.

The latest data showed that people of colour were paying £20.73 per month more – or £248.71 per annum more – on average for their car insurance compared to white people.

In total, Citizens Advice estimated that people of colour were paying £180m more for car insurance overall.

Budget planning data of the 15,000 debt clients was used to develop two multiple regression models to determine which demographic variables had a significant impact on monthly car insurance expenditure, including ethnicity.

A year on from its initial call for the FCA to address the ethnicity penalty, Citizens Advice said the FCA had failed to take action.

The charity emphasised the importance of clear enforcement action from the FCA, in relation to firms that could not explain their ethnicity pricing differences.

Citizens Advice said the car insurance pricing differences showed that people of colour may be subject to indirect discrimination, which is covered by the Equality Act.

The charity further explained that even if firms weren’t using ethnicity data to determine prices, pricing decisions could still be considered discrimination given the highlighted correlation between insurance costs and ethnicity.

Cancelled car insurance

The cost of living has disproportionately impacted people of colour, said a Citizens Advice statement. 

Citizens Advice estimated over one million people cancelled their car insurance in 2022 amidst increased bill costs.

However, it revealed that people of colour were three times more likely to cancel their insurance than white people.

The charity believes the ‘ethnicity penalty’ is compounding the problem of cancelled car insurance.

Dame Clare Moriarty, chief executive of Citizens Advice, commented: “This ethnicity penalty is an expensive and unfair burden on people of colour.

“It is time for insurance companies to stop hiding behind algorithms and for the FCA to get off the sidelines and take action.”

“This is a truly worrying link between ethnicity and insurance costs, but one year on and the FCA is still nowhere to be seen.”