Mo. Report Says Minorities, Low-Income Areas Still Face Hurdles in Obtaining Affordable Insurance

December 30, 2004

A Missouri Department of Insurance (MDI) report on home and auto insurance found that significant obstacles to obtaining affordable coverage still exist for low-income and minority residents of the state, Director Scott Lakin said.

Particularly striking was the report’s examination of auto insurance “territories” -geographic areas with up to almost 90 percent minority populations used for setting premiums. Policyholders in these high-minority areas commonly are charged up to 250 percent of the rates found elsewhere in Missouri.

The report, however, concluded that substantially higher rates charged in high-minority areas generally are based on the losses that insurers must pay there.

“Our study found these higher rates have an actuarial basis. Nevertheless, these rates for auto and home insurance have a major negative impact on the ability of inner-city areas of Missouri to redevelop and attract new residents. A state’s insurance approach should not be bound only by actuarial soundness,” Lakin said.

“Policymakers can and should determine that insurers should set pricing in ways to achieve broader goals for our citizens – just as we no longer allow race-based premiums for life insurance despite the documented shorter life spans of minorities.

“We want to make this information available so that policymakers in the General Assembly can take whatever steps are necessary to assist low-income and minority residents, who tend to face insurance accessibility problems in both urban and rural Missouri. This department also should continue to work with companies to increase the access of low-income and minority-dominated areas to affordable insurance.”

First completed in 1993 and 1997, the affordability report this year included auto insurance for the first time and examined the auto territories used by the 10 highest-volume auto insurers in the state.

Territories – which number about 30 statewide for each insurer — are designed to adjust rates for the hazards associated with where a person lives, rather than the driver’s own accident and traffic record. Missouri does not require areas within territories to be contiguous.

Two companies use territorial designs in which minority concentrations reach or exceed 88 percent.

The study determined that rates rise as minority concentrations increase and, to a lesser extent, as income declines.

Among the report’s other findings:

* Although most tests found that rates in high-minority areas were actuarially sound, an exception emerged in 2003 for homeowners insurance. Home insurers paid out 45 percent or less of premiums in 2003 for claims in areas with 20 percent or greater minority residents, compared to 79 percent in low-minority neighborhoods. Higher claims payouts produce greater value for policyholders. This situation may have occurred because home insurers raised rates for residents who filed claims in minority areas of St. Louis hardest hit by the April 2001 hailstorm. The report recommended further monitoring of homeowners losses in those neighborhoods.

* The report determined that more than 40 percent of autos in high-minority areas lack legally mandated liability coverage – compared to only 4.6 percent in predominantly white areas. This gap remained even when the areas had similar household incomes.

* Far fewer homes in inner-city areas had insurance coverage than in low-minority areas. Largely white neighborhoods had average insured rates of 92 percent for homes in 2003 – and that figure understates the degree of coverage because Missouri data does not include 100-plus county mutuals that sell almost entirely in predominantly white, rural areas of the state. In high-minority areas, only 81 percent of the homes had insurance coverage through licensed carriers. In the late 1990s, high-minority neighborhoods in Missouri had higher insured rates. The gap was even greater for renters insurance, although the report concluded that this difference resulted primarily from lower income levels.

* Areas with high minority concentrations or low income levels – regardless of racial mix – had less access to insurance markets through local agents. Low-income neighborhoods had less than half as many agents, and high-minority areas had 44 percent fewer personal lines agents per capita.

* Missouri’s largest auto and home insurers do not have the same presence and sales in the state’s high-minority areas as they do elsewhere in the state. In 2003, the combined market share of Missouri’s top 10 homeowners insurers was 10 percent less in high-minority neighborhoods with an 11.7 percent gap among auto insurers. This disparity remained even when the areas had similar incomes. The inability or refusal of large insurers to penetrate these markets may damage such communities because they cannot take advantage of competitive pricing or the economies of scale these insurers enjoy. Policyholders in these areas consequently may pay higher premiums or cannot obtain coverage at all from small companies.

* Official complaint rates to MDI – one gauge of consumer satisfaction — from high-minority areas were two to three times greater than from residents of other neighborhoods. This gap remained even when claim losses, income and other factors were similar.

* Owners of homes in high-minority neighborhoods were 17.5 percent more likely to have more restrictive insurance coverage than Missourians elsewhere. However, the report attributed this differential other socioeconomic variables.

The high-minority areas in the report are 33 Zip Codes with more than 50 percent minority residents – largely African American or Hispanic – according to the 2000 census. The Zip codes included 13 in St. Louis City, seven in St. Louis County and 13 in Kansas City.

The full report is available to the public on the MDI Web site at

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