Insurers are using your race and religion to set prices. Is it discriminatory?

Legal experts have warned insurers risk breaching Australia’s discrimination laws after it emerged at least one major firm is using data on race and religion – including a suburb’s Muslim population – to determine motor and home insurance premiums.

That insurer, Suncorp, defended its processes for setting premiums as in line with risk, after leaks from within the company claimed the insurer was relying on data, including the share of people with Greek ancestry or Muslim faith, to set its prices in an area.

Insurers have traditionally focused on factors such as a customer’s age or a house’s proximity to bushland and areas known for crime, but the Australian Financial Review reported this week that Suncorp had gone further.

Customers in areas with higher Islamic affiliation, or Greek or Welsh ancestry, were charged more under the Suncorp model. Areas consuming more rice than pasta were priced as lower risk, while policyholders from areas with low yoghurt consumption were charged more.

Separately, an industry source told this masthead other insurers used average chickpea consumption – indicating customers with time to make hummus – to determine if a customer was likely to shop around after a price hike and request a discount.

The Australian Securities and Investments Commission has previously warned that car insurers have failed to explain cumulative price rises of up to 50 per cent over the last six years.

A Suncorp spokesman said the insurer sets premiums using “risks associated with customers and their location, including our significant data set of claims history and sophisticated prediction modelling”.

“Additionally, our premium calculations consider external data sources when they help us predict risk, including using multiple natural hazard models, theft rates and public data,” the spokesman said.

“This public data is de-identified and aggregated and helps us derive risk rating zones to better predict claim frequency and claim size,” the spokesman said, adding that Suncorp remains “committed to fair pricing and [has] a pricing ethics framework that provides governance, including regular reviews of our data”.

Suncorp has since stopped using the religious and ethnic data to determine prices, but continues to use other census information.

Insurers are exempt from parts of Australia’s anti-discrimination laws, allowing them to charge more on the basis of age, sex and disability, if those characteristics are associated with higher risk. This includes younger and male drivers being charged typically higher premiums for motor insurance, and older Australians paying more for health cover.

But that exemption does not include race or religion. Shine Lawyers’ head of class actions, Craig Allsopp, said insurers must justify pricing with legitimate actuarial or risk-based evidence, and using protected personal characteristics or their proxies could result in unlawful discrimination.

“If an insurer is using data connected to a person’s ancestry, ethnicity, religion or cultural background to increase premiums, that raises very serious legal and ethical questions,” Allsopp said.

“If a pricing model systematically increased premiums for people in areas associated with particular ancestry, religion or cultural background, affected customers may be able to argue they suffered loss through an unlawful or unfair pricing system,” he said.

Consumers are “entitled to ask whether they are being penalised because of who they are, where they live, or the community they belong to”, Allsopp said.

Zofia Bednarz, a former lecturer of commercial law at the University of Sydney now researching the legal implications of automated decision-making by financial firms, said advancements in AI had let insurers find correlations between data to help them set prices.

Uptake of AI and automation of pricing modelling means in some cases, regulators may be in the dark and even insurers may not be aware they are discriminating, Bednarz said. She said while food consumption could indirectly correlate with race, religion or background, the Suncorp examples suggested more direct discrimination, similar to insurers closing offices in less profitable migrant suburbs.

“The example of areas in which there is a high percentage of Muslim population being offered higher prices is simply redlining,” Bednarz said, referring to the historical US practice of excluding people of colour from certain neighbourhoods. “[That] is practically direct discrimination, not even looking for proxies such as pasta, rice, or halal meat consumption for example.”

The Insurance Council of Australia did not respond to questions.

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