Insurers could face £1bn legal claims over “ethnic penalty” – Equality and Human Rights Commission ex-chair

Trevor Phillips, former chair of the Equality and Human Rights Commission, has slammed insurers over the way they calculate premiums, claiming that black, Asian and minority ethnic (BAME) communities are paying an “ethnic penalty”.

Insurers could ultimately face a £1bn legal bill if this continues, Phillips suggested.

Speaking to diversity publication The Voice, Phillips stopped short of accusing insurers of discrimination, suggesting that machine learning has led computers to see ethnic names as a “shortcut” to identifying someone who is “more risky”.

Investigations into potential discrimination

Recent investigations by newspapers and broadcasters claimed to find substantial differences in premium rates between applicants with different names. These claims are disputed by insurers who say the different premiums resulted from other differences in the application data.

Insurer Admiral said it was consulting with its lawyers after The Sun newspaper published its report. 

Speaking to The Voice, Phillips revealed that a report he co-authored in 2016 found that millions of people living in areas with ethnically diverse communities were paying up to £458 a year more on their car insurance premiums.

Phillips said: ““The real problem here is that the insurance companies do not know why this is happening and their sin, if I can put it this way, is that they refuse to investigate what’s going on. They are refusing to accept that there is any bias in how these premiums are calculated and they are refusing to take steps to correct it.”

Also speaking to The Voice, Simon Woolley of Operation Black Vote called for an “honest debate” as to how insurers’ algorithms are built and work and called for the community to take “radical steps” if the alleged problem is not addressed.

Woolley commented: “Black people’s premiums seem very much more expensive for no other reason than their name, their religion and/ or the colour of their skin.”

The ABI denies industry malpractice

However, the ABI has refuted allegations of industry discrimination, suggesting that insurers use many factors to determine premiums. It also said the tests carried out could have led to fraud alerts being triggered, or unverifiable results.

An ABI spokesperson commented: ”Insurers use a wide range of factors when deciding motor premiums. This is part of what creates a competitive market that allows customers to shop around for the best deal for them. Use of ethnicity as one of these factors would be illegal and unacceptable, and insurers will always act within the law. We are always open to discussing serious concerns such as these with representative organisations and groups. Genuine insurance customers do not buy insurance by getting a quote and then tweaking individual details such as a name, so tests on comparison sites that operate in this way may well produce details for a customer that cannot be verified or can trigger fraud alerts.”