Decompiling Oppression #33
Sam McVeety
This week, we're going to look at the insurance industry, and how seemingly neutral policies can amplify existing disparities across many different identities, including race, gender, disability status, and age. The catalyst for this was some progressive news out of Olympia this week, where the Washington State insurance commissioner banned the use of credit scores to compute premiums in auto, homeowners, or renter insurance.
Since this is a technical topic that I expect many readers (myself included) aren't familiar with, let's spend some time on the background. A credit score predicts how likely you are to pay back a loan on time. Credit scores themselves have lots of problems, but we'll leave those aside for the moment, and take the existence of a credit score as a given for now.
The issue in the insurance industry is that this credit score is being used to compute how much someone should pay for their premiums, like auto insurance. Now, you might think that there's a correlation here, but it's not a meaningful one. As the insurance commissioner's office writes, "In Washington state, insurers charge good drivers with low credit scores nearly 80% more for mandatory auto insurance."
This might seem harmless (albeit analytically misguided), but the danger with pulling in weak predictive factors like this is that they might pull in other baggage as well. Think about recruiting in the tech industry -- if you're only looking at Ivy League schools, you might *on average* find individuals that perform better, but you are ignoring and penalizing the many individuals who are lost in the aggregate. If there are disparate impacts in admission to those schools, your hiring process reproduces those disparities.
Now let's get back to credit scores themselves. Not only are credit scores a weak predictor for computing insurance premiums, but they bring plenty of baggage along with them. They create disparate outcomes across many identities:
Race: One in five Blacks has a credit score below 620, compared to 1 in 19 Whites.
Disability: Respondents with disabilities were more than twice as likely as those without disabilities to report their credit record as either “bad” or “very bad” (31 percent compared to 13 percent).
Gender Identity: For transgender people, and especially transgender people of color, the practice of evaluating credit reports in housing and employment decisions reproduces inequality due to the way that names are recorded within the reports.
When talking about credit and loans, it's also important to note that access to credit and loans has a deeply racist history, exemplified by redlining in the housing market. With redlining, community covenants restricted the presence of "not just African Americans but also Native Americans, Asian Americans, Pacific Islanders, people of Mexican ancestry, and also, at times, Jews." These exclusions were compounded by discriminatory denial of credit to these same groups.
Importantly, this creates a feedback cycle -- higher insurance premiums mean that fewer people can afford insurance. If you choose to buy insurance, higher premiums create additional stress on your finances (and thus credit rating) by increasing the cost of regular payments. If you choose not to buy insurance, your credit rating will almost certainly be impacted by the financial fallout in the case of an incident that would otherwise be covered by insurance.
Adding insult to injury, many of these insurers have publicly voiced support for racial equity goals and ending system racism. However, tying different systems like credit ratings and insurance together amplifies the vulnerability that people are already feeling, effectively creating a self-perpetuating tax on racialized poverty. When we talk about systemic racism and systemic oppression, this is exactly what we're talking about.
Here are this week's invitations:
Personal: Spend some time reflecting on how credit has affected your life so far, including some of the less visible ways that we've discussed today.
Communal: See if your insurer has pledged to fight racial discrimination. Ask them if they will honor this pledge by ceasing the use of credit scores in calculating premiums.
Solidarity: Support Community Credit Lab and their work to provide equitable lending programs and address the root causes of inequality in the financial system.
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
FAQ
Can I share this newsletter with non-Googlers? Yes! Feel free to forward this note externally; it does not contain confidential information.
Is this an official Google newsletter? Nope. The views expressed in this newsletter are not the official position of Google, and we are not affiliated with any particular ERG.
I am leaving Google or transferring to another bet. Can I still receive this newsletter? Yes! You can join the external list here.