General Insurers are not racist, but they can not defend themselves.

The accusation levelled at the industry by the Citizens Advice charity that it is systematically racist in the pricing of insurance is, simply, wrong.???

At Consumer Intelligence, we know this for two reasons. Firstly, because we test millions of price points a month and secondly because we know how prices are calculated. Race is not a piece of data that is available in the market from any provider. It also isn’t a question asked by any PCW which is where the majority of consumer go to get a comparative price for car insurance.?

The problem the industry has is that the way that price is calculated is already so complex and filled with the possibility of unconscious bias that it is impossible to say that there isn’t a piece of data, or two pieces of data put together that creates a bias, even if it isn’t meant to be there.? And because the industry doesn’t know the race of the person, there isn’t a way to retrospectively check for unconscious bias within the data.?

And therein lies the problem that is also coming down the line in the form of Fair Value and Consumer Duty and so the industry needs to get its head around it rather than burying that head in the sand.?

As an industry, there is no defence to the unconscious bias charge.?

Having clear understanding of how price and value are created is inherent with the Fair Value requirements that the FCA is bringing in.???

The Citizens Advice finding points to one other problem the industry might think has gone away.? Vulnerable Customers.? Here are the words from Citizens Advice “As part of a year-long investigation, the charity analysed 18,000 car insurance costs reported by people who came to Citizens Advice for debt help in 2021.”?

Let me translate those words for you into language that might be more familiar: “As part of a year-long investigation, the charity analysed 18,000 car insurance costs reported by vulnerable customers in 2021.”?

Citizens Advice is making the point, based on a sample size of 18,000 vulnerable customers, that certain groups are more unfairly treated than others. Knowing insurers, I know that there is a load of good reasons why the prices are lower or higher, the problem is that those reasons don’t play well in the court of public opinion even if insurers wanted to use them. It will play out as defending the indefensible.?

Citizens Advice goes on to suggest a remedy “The charity is calling on the FCA to set out how insurance firms must prove they abide by the Equality Act 2010. It must also require insurance firms to audit and account for their pricing decisions. If the firm cannot explain any ethnicity pricing differences, the regulator must take enforcement action.”?

Let’s be clear.? No firm can explain ethnicity pricing differences because firms don’t collect or use information about ethnicity within pricing. The only way to prove there is no bias is to collect the data, which then opens the industry up to claims of bias. It’s Catch 22.??

It is also worth noting, the methodology that Citizen's Advice used (mystery shopping) was flawed. As a mystery shopping company that specialises in this market, I can drive a coach and horses through their testing.? Put simply, you can’t rely on that data. Our experience is that anything where you use someone who isn’t real at an address, or where you put a second fake person's name in at an address this will trigger fraud filter and push the price up. So, this evidence is unreliable.?

But you know what? It doesn’t matter, because the outcome measure of 18,000 people is the thing the industry should look at. The second you start arguing with the points at the technical level, you lose the argument.?

And the industry needs to now double down on answering the question already posed by the FCA in its’ fair value guidance, and now by Citizens Advice in their recommendation to the FCA. To paraphrase: “Insurers will need to audit and account for their pricing decisions. If the firm cannot explain any pricing differences in terms of vulnerable customers and equality, the regulator must take enforcement action.”?

I can some up all of this in 3 words:? Good Pricing Governance. Which means being able to explain pricing changes in clear simple terms and show a clear analysis of vulnerable customer impact within those decisions.?