Targeting by Zip Code

Carrying legally-required car insurance is beneficial for all drivers, but the skyrocketing cost of insurance is pricing too many Texans out of the market. This case study of Harris County examines the impacts on Texans of the rising cost of car insurance, with a particular focus on the connection between the premium pricing by zip code and ticketing rates for failure to have car insurance.

The primary finding is that higher insurance premiums are associated with higher ticketing rates for failure to have car insurance. We also find that good drivers in lower-income zip codes pay more for insurance compared to similar drivers in more affluent zip codes. Residents of lower-income zip codes also experience a higher likelihood of being ticketed and facing warrants for failure to have car insurance. Taken together, these findings raise concerns that current pricing practices are having the effect of criminalizing poverty.

We recommend that policy makers limit the use of rating factors related to small geographies and credit scores, which can disproportionately harm low-income Texans. To protect against discriminatory pricing algorithms and the use of illegally-obtained data to price insurance, we recommend providing the Texas Department of Insurance with authority to set data input standards and test scoring models before they are used. Finally, Texas should explore a lower-cost car insurance program for low-income good drivers, as a strategy to make policies more affordable.