Black and Hispanic consumers pay hundreds of dollars more on average each year in homeowners insurance premiums, according to a new report issued Tuesday by the Consumer Federation of America, or CFA, an advocacy organization.
The report, which looks at homeowner insurance premiums and racial demographics in every ZIP code in the United States, found evidence of a substantial racial premium gap – a major upcharge for some consumers.
On average, homeowners in Black communities pay a 16 percent higher premium, or $500 more per year, compared to homeowners in White communities. Homeowners in Hispanic communities pay a 30 percent higher premium, or $950 more per year, compared to homeowners in White communities.
Over a 30-year mortgage, this gap results in at least $15,000 in additional insurance premiums for Black homeowners and $28,500 in additional premiums for Hispanic homeowners.
“Black and Hispanic homeowners are being unfairly charged higher premiums for their home insurance coverage,” Sharon Cornelissen, director of housing at the CFA and a co-author of the report, said in a statement. “This racial premium gap hurts their ability to afford housing, to become homeowners, and to build generational wealth.”
The report controls for various factors and shows that this gap isn’t explained by differences in the characteristics of homeowners, their home, or what people opt to insure. After accounting for factors that shape insurance risk and that are commonly used by insurance companies, homeowners in Black communities still pay a 10 percent higher premium on average, and homeowners in Hispanic communities pay an 11 percent higher premium on average.
Based on the CFA’s analysis, the racial premium gap is larger in some states, meaning that homeowners in Black and Hispanic communities can pay thousands of dollars in additional insurance costs.
The Black premium gap is especially large in Michigan, where homeowners in mostly Black neighborhoods are charged on average $1,768 a year more, or 74 percent more, for the same coverage. And Florida has the largest Hispanic premium gap: homeowners in mostly Hispanic neighborhoods are charged 58 percent more – an average of $5,014 more each year – for the same insurance coverage when it’s offered to homeowners in mostly White ZIP codes.
The study offers three recommendations:
- States should enforce fair housing laws related to insurance companies and require regular company testing and disclosures to prevent different impacts – disproportionate harm to certain groups of consumers.
- States should prohibit insurers from using ZIP code or smaller geographic territories when setting premiums.
- Insurance companies should make their transaction-level homeowners insurance data public every year like the Home Mortgage Disclosure Act, or HMDA, database.
“Insurance companies should be changing their pricing models to end the redlining-by-overcharging that we see in the data, but since they seem unwilling to self-correct, state regulators should be stepping in to demand change,” said Douglas Heller, CFA’s director of insurance and co-author of the report.
