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It is in the news that car insurance is higher in areas that have a higher proportion of people of colour. This is an analysis that is very easy for anyone to do, so I thought I would see what really effects this.

I used a price comparison website to get third party only quotes for the same car (2015 Astra) at three locations within London, two close together with very different house prices from here, Park Royal (price ~£302k) and West Acton (price ~£897k) and the famously expensive Chelsea. I find that it is more expensive to insure your car at more expensive locations, Park Royal = £605, West Acton = £670 and Chelsea = £2200! This is opposite of what I expected from the new above.

I can understand that claims for theft or damage to the car would be different depending on location, but why is third party only insurance dependent on where the individual lives? West Acton is only round the corner from Park Royal, the roads driven on will be very similar between these two locations.

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Insurance quotes will depend on two things:

  1. What the company thinks the average claim on that policy is likely to be; and
  2. What the company thinks the customer is likely to be willing to pay.

While the second will have some bearing here (someone living in Chelsea is likely to have much smaller price elasticity of demand), the fact that insurance is more or less a commodity is likely to downplay this factor.

I would suggest that the biggest factor is that even with the same number of accidents per year, it's going to cost a lot more if you're crashing into supercars in Chelsea, than if you're crashing into Ford Focuses in Park Royal.

(Ultimately this is going to come down to the actuarial data that the insurance company have on claims; it's almost certain that it shows slightly higher average payouts for people living in West Acton, and much higher average payouts for those living in Chelsea. Why this might be the case is a complex and opaque question.)

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    Right - auto insurance is a combination of liability insurance (those supercars and litigious people that you could scrape with your Astra) and property insurance (theft or damage to your Astra). Depending on location, either the liability portion or the casualty portion could outweigh the other.
    – Orange Coast- reinstate Monica
    Commented Mar 22, 2022 at 18:50

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