A new UCLA study indicates that automobile insurance premiums determined using a place-based component adversely affect those living in African American and poor neighborhoods in Los Angeles.

The report, titled "Redlining or Risk? A Spatial Analysis of Auto Insurance Rates in Los Angeles," examines the relative influence of place-based socioeconomic characteristics (or "redlining") and place-based driving risk factors that auto insurance companies state are important in determining insurance rates. The examination combines tract-level insurance-rate quotes from multiple companies, census data and driving risk factors for sub-areas within the city of Los Angeles.

The report's authors, Paul Ong and Michael A. Stoll, professors at the UCLA School of Public Affairs, used a hypothetical "individual" with fixed demographic and auto characteristics, driving record and insurance coverage, and looked at the independent contributions of both risk and redlining factors to the place-based component of that individual's car insurance premium.

While the characteristics of the hypothetical driver—the driving history, the car and the liability coverage—stayed the same, quotes from multiple insurance companies varied widely across zip codes throughout Los Angeles. Those living in predominantly poor and black neighborhoods pay the highest rates.

Even after neighborhood-based driving risk factors were taken into account, socioeconomic factors of neighborhoods remained statistically significant in predicting auto insurance rates, according to Stoll and Ong. Furthermore, simulations show that redlining factors explain more of the gap in auto insurance premiums between black (and Latino) and white neighborhoods, and between poor and non-poor neighborhoods.

Higher car insurance rates can affect the ability to own a vehicle, especially for racial minorities and the poor, including welfare recipients. More importantly, car ownership strongly influences a person's ability to search for and find employment and to stay employed, according to the report's authors.

In 1988, California voters approved Proposition 103, which stipulated that auto insurance rates should be based primarily on three factors: the driver's age and safety record, the driver's annual mileage, and the number of years of driving experience. However, the role of place in setting premiums has remained controversial, and court rulings have allowed continued use of zip codes to complement the determination of insurance premiums.

"Developing a sound policy depends in part on determining the relative role of risk versus race and class in the existing place-based structure," said Stoll and Ong. Citing a lack of prior research, Stoll and Ong said the study represents a major step forward in testing how redlining and risk influence the geographic variation in insurance rates.

Paul Ong is professor of urban planning, social welfare and Asian American studies at the UCLA School of Public Affairs and is the former longtime director of the Ralph & Goldy Lewis Center for Regional Policy Studies at UCLA. Michael A. Stoll is an associate professor of public policy and urban planning at the UCLA School of Public Affairs. He also is associate director of the Center for the Study of Urban Poverty at UCLA. 

The report may be downloaded as a PDF file from the Lewis Center Web site at:
http://lewis.spa.ucla.edu/publications/workingpapers.cfm

The UCLA School of Public Affairs was founded in 1994 to educate the next generation of practitioners and academic researchers in the "problem-solving professions"—public policy, social welfare and urban planning. The school produces outstanding basic and applied policy and practice research in these fields and provides timely policy advice to policy-makers in the public, private and nonprofit sectors. With more than 75 faculty and more than 400 graduate students, a popular undergraduate minor program, nine research centers, and a senior fellows program, the school is one of the largest and most dynamic of its kind in the nation.

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