Liz Pulliam Weston

The Basics

Is your insurer discriminating against you?

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The idea that the young might pay more for insurance is nothing new -- insurers are legally allowed to discriminate against youth, especially when it comes to auto insurance. Young, inexperienced drivers are, as a class, much more likely to be involved in crashes than older folks (although the accident rate per miles driven starts to spike again over age 70). Thus, insurers are allowed to charge them more for liability and collision insurance.

Where you live also has a big impact on how much you pay. Insurers aren't allowed to write off whole neighborhoods of low-income or minority residents -- an illegal act known as redlining -- but they may charge an urban neighborhood more than a less-crowded suburb, arguing that crashes are more frequent where there are more cars, and homeowners' claims more common where the housing stock is older.

Indirect discrimination

What insurers aren't allowed to do is discriminate based on race, no matter how actuarially sound their arguments. Blacks, for example, have shorter life expectancies on average than whites, but companies aren't allowed to charge black customers more for life insurance.

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Insurers argue that they should be allowed to use credit scoring because they aren't being intentionally discriminatory. The Texas insurance commissioner, who often sides with the industry, argued in a letter to the state legislature that almost every rating factor used in insurance could be found to discriminate against someone, and urged lawmakers not to act hastily to ban credit-based insurance scoring.

But consumer advocates argue that de facto racial discrimination should not be allowed, no matter how unintentional.

"This report will really fuel the fight" against insurance scoring, predicted consumer advocate Birny Birnbaum, a former Texas insurance associate commissioner and leading critic of insurance scoring. "The question is, are we going to allow the use of a rating factor that does indirectly what you can't do directly?"

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.

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