Context
The FCA has published findings from its analysis of the links between the price of motor insurance and local area ethnicity in England and Wales, along with a Research Note and a series of Annexes to the research.
The Citizens Advice Bureau had raised concerns that individuals from minority ethnic backgrounds are paying £307 on average more for their motor insurance. The FCA committed to examining those concerns. As a regulator, the FCA has access to data which is representative of the wider market, including risk measures. The FCA’s analysis used data from 6 million policies, covering over half the UK market by insurer and including both predicted and actual claims costs. This data was merged with ethnicity data from the Office of National Statistics for local areas covering 1,000–3,000 residents.
Key points to note and next actions
- Risk is fundamental to insurers’ business models price setting. This includes looking at a range of data points like driver age, experience, and claims history. Insurers don’t collect data on individuals’ ethnicity and don’t price directly based on it.
- The data used can also include geographic location, where factors like high traffic, theft, and vandalism matter. To measure that risk, the FCA looked at insurers’ expected claims costs in an area, with analysis showing that the relative risks in a geographical area account for the overwhelming difference in prices between those areas with high and low numbers of residents from minority ethnic backgrounds.
- The FCA recognises that does leave a difference in price, albeit a small one, that can’t be attributed just to the claims insurers expect to pay. Looking into why this ‘unexplained’ difference occurs, the FCA state that the short answer is they don’t and probably can’t know.
- The Motor Insurance Taskforce Final report presents the findings of the task force and sets out the actions government department and regulators are taking to help stabilise and reduce the premiums paid by drivers. Efforts will continue to address the broader factors that contribute to the cost of claims, such as vehicle theft and the cost of repairs, including:
- efforts to tackle vehicle-related crime;
- continuing to make roads safer; and
- working closely with industry to encourage innovation in new vehicle technologies, driving efficiencies and reducing costs.
As well as setting out the actions government departments and regulators are taking, the report also explores the characteristics of the UK’s motor insurance market. It acknowledges that the market is strongly competitive and innovative and has faced real and increased costs to serve motorists in recent years.