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Redlining or risk? A spatial analysis of auto insurance rates in Los Angeles

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  • Paul M. Ong

    (School of Public Affairs, UCLA)

  • Michael A. Stoll

    (School of Public Affairs, UCLA)

Abstract

Auto 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

Suggested Citation

  • Paul M. Ong & Michael A. Stoll, 2007. "Redlining or risk? A spatial analysis of auto insurance rates in Los Angeles," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 26(4), pages 811-830.
    • Handle: RePEc:wly:jpamgt:v:26:y:2007:i:4:p:811-830
    DOI: 10.1002/pam.20287
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    References listed on IDEAS

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    1. Raphael, Steven & Rice, Lorien, 2002. "Car ownership, employment, and earnings," Journal of Urban Economics, Elsevier, vol. 52(1), pages 109-130, July.
    2. 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.
    3. 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.
    4. 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.
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    Cited by:

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    2. Klein, Nicholas J. & Basu, Rounaq & Smart, Michael J., 2022. "In the driver’s seat: Pathways to automobile ownership for lower-income households in the United States," SocArXiv 7ex6z, Center for Open Science.
    3. Yelowitz, Aaron & Scott, Frank & Beck, Jason, 2011. "The market for real estate brokerage services in low- and high-income neighborhoods: A 6 city study," MPRA Paper 35608, University Library of Munich, Germany.
    4. Mauricio Cáceres & Kenneth P. Jameson, 2015. "The effects on insurance costs of restricting undocumented immigrants' access to driver licenses," Southern Economic Journal, John Wiley & Sons, vol. 81(4), pages 907-927, April.

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