Redlining or risk? A spatial analysis of auto insurance rates in Los Angeles
AbstractAuto insurance rates can vary dramatically, with much higher premiums in poor and minority areas than elsewhere, even after accounting for individual characteristics, driving history, and coverage. This paper uses a unique data set to examine the relative influence of place-based socioeconomic characteristics (or redlining) and place-based risk factors on the place-based component of automobile insurance premiums. We use a novel approach of combining tract-level census data and car insurance rate quotes from multiple companies for sub-areas within the city of Los Angeles. The quotes are for a hypothetical individual with identical demographic and auto characteristics, driving records, and insurance coverage. This method allows the individual demographic and driving record to be fixed. Multivariate models are then used to estimate the independent contributions of these risk and redlining factors to the place-based component of the car insurance premium. We find that both risk and redlining factors are associated with variations in insurance costs in the place-based component, with black and poor neighborhoods being adversely affected, although risk factors are stronger predictors. However, even after risk factors are taken into account in the model specification, SES factors remain statistically significant. Moreover, 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 nonpoor neighborhoods. The findings do not appear sensitive to the individual characteristics of the hypothetical driver. © 2007 by the Association for Public Policy Analysis and Management
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by John Wiley & Sons, Ltd. in its journal Journal of Policy Analysis and Management.
Volume (Year): 26 (2007)
Issue (Month): 4 ()
Contact details of provider:
Web page: http://www3.interscience.wiley.com/journal/34787/home
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Steven Raphael & Lorien Rice, 2000.
"Car Ownership, Employment, and Earnings,"
JCPR Working Papers
179, Northwestern University/University of Chicago Joint Center for Poverty Research.
- Nothaft, Frank E. & Perry, Vanessa G., 2002. "Do mortgage rates vary by neighborhood? Implications for loan pricing and redlining," Journal of Housing Economics, Elsevier, vol. 11(3), pages 244-265, September.
- Evelyn Blumenberg & Paul Ong, 1998. "Job accessibility and welfare usage: Evidence from Los Angeles," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 17(4), pages 639-657.
- Paul M. Ong, 2002. "Car ownership and welfare-to-work," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 21(2), pages 239-252.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.