American Car Insurance Industry relies on opaque algorithms to give rate quotes

In the United States, car insurance is legally required in all states but one. A recent investigation points to the car insurance industry’s widespread profiteering through covert algorithmic practices and the shady usage of consumer data. A 2015 analysis from Consumer Reports (an independent, nonprofit organization that fights for truth, transparency, and fairness in the marketplace) found that car insurance companies use algorithms that give customers rate quotes based more on their socioeconomic status than on their driving habits (Consumer Reports 2015). The data analysis evaluated more than 2 billion car insurance price quotes from more than 700 companies with the greatest share of customers in every U.S. ZIP code from 2015-2016. It identified how car insurance firms deploy scoring algorithms that evaluate factors like credit history, financial history, and consumer preferences (e.g. TV provider) (ibid).

Legal and technology scholars have become wary of the effects of big-data fueled credit scoring systems. The systems integrate thousands of data points (normally without consumer knowledge) and manufacture serious problems of transparency (Hurley & Adebayo 2016). The application of big data analytics to credit-worthiness assessments often creates discriminatory practices against certain marginalized communities (ibid). While the discriminatory outcomes of the algorithms are often mistaken for deliberate, concentrated efforts, the biased impacts are actually results of neutral and non-protected attributes (such as zip code) that serve as proxies for immutable, protected characteristics (such as gender or race) within the algorithmic processing. Despite the protected variables being never used within the model, the discriminatory outcome is nonetheless the same. As a result, the use of proxies problematizes efforts to litigate firms for breaching existing anti-discriminatory regulations for protected characteristics (ibid). Related to this, big data analytics has supported the targeting of vulnerable customers and the implementation of abusive pricing policies, which is precisely what Consumer Reports discovered in their 2015 report of the car insurance industry.