Spotlight: An Interview with Michael Stoll on his Work, "Redlining or Risk: A Spatial Analysis of Auto Insurance Rates in Los Angeles"

Michael A. Stoll

Chair, Department of Public Policy, UCLA School of Public Affairs, 
Professor of Public Policy and Urban Planning, School of Public Affairs, 
Acting Director, Center for the Study of Urban Poverty 
Ph.D. in Urban Studies and Planning, Massachusetts Institute of Technology


Michael Stoll's main research interests include the study of urban poverty and inequality, specifically the interplay of labor markets, race/ethnicity, geography and policy. His published work includes an examination of the labor market difficulties of less-skilled workers, in particular the role that racial residential segregation, job location patterns, job skill demands, employer discrimination, job competition, transportation and job information play in limiting employment opportunities. Much of this work has been featured in a variety of media outlets including NPR, PBS, ABC Chicago Talk Radio, the Los Angeles Times, San Francisco Chronicle, and the New York Times, among other outlets.

Currently, Dr. Stoll is working on major research projects that examine the labor market consequences of mass incarceration, the benefits and costs of the prison boom, the reasons for the prison boom in the U.S., the social and economic consequences of urban sprawl, and the sources and consequences of differences in auto insurance premiums and traffic patterns within metropolitan areas.

Dr. Stoll is also a member of the West Coast Poverty Center’s Advisory Board.

The West Coast Poverty Center had the opportunity to ask Dr. Stoll about his thoughts on his recent publication "Redlining or Risk: A Spatial Analysis of Auto Insurance Rates in Los Angeles," published in the Journal of Policy Analysis and Management, Vol. 26, No. 4 (2007) and highlighted in WCPC Research Flash 2008-3.


WCPC: How did you become interested in the question of whether or not insurance companies were redlining insurance rates for poor and minority drivers?

Stoll: We became interested as a result of previous work examining racial differences in car ownership. We were interested in the question of why blacks and to a lesser extent Latinos had car ownership rates that were much lower than that of whites. We thought one possible explanation, among many others, was higher car ownership costs that blacks faced, including potentially higher insurance costs. And that sparked our interest in car insurance markets.

WCPC: In your data set you included measures and factors that insurance companies say they use to set premiums, yet found that those factors did not explain all of the variation in rates. You note that it might be possible that insurance companies are using additional information was not available to you to set their premiums which would account for the variation. What kind of additional information could that be?

Stoll: It is hard to tell precisely because insurance companies, as you note, have not been forthcoming with this information, claiming that it is proprietary. Of course, the most important factors to them are those that affect the bottom line, and that is claim rates and loss rates, and these are in our models. But, as they note through various communications, other factors are likely to matter to them in setting rates including population density and average annual climate. But we also learned, subsequent to this study, that smaller companies who are unable to do their own actuarial research to help set rates may just follow market leaders in setting these rates, thus introducing a lot of “noise” into estimating these relationships. It is important to note that our study focused on understanding the variation in the geographic component of the auto insurance premium and not the individual component, which of course is affected by individual risk characteristics such as age, sex, driving record, miles driven, type of car, etc.

WCPC:You collected insurance premium quotes through online insurance quotes. What was the most attractive part of using this data gathering technique?

Stoll: We thought that it was kind of a neat way to gather data that we couldn’t get from insurance companies directly, and it took advantage of the power of the web that in many instances provides real time information in insurance markets of a variety of stripes, including the car insurance market.

WCPC: What was the most significant finding to you?

Stoll: That the unexplained component of the geographic premium in insurance markets, or what we think of as “redlining,” accounted for so much of the gap in insurances rates across neighborhoods differing by demographic characteristics.

WCPC: What questions does this research raise for future inquiry?

Stoll: It raises a whole host of questions including whether most companies follow market leaders in setting rates across areas, and about why if our analysis is true, other companies haven’t come into to these areas and offered insurance rates at a lower premium to undercut the competition. Our analysis suggests that they could do so without significantly raising their exposure to losses because the estimated losses in these areas seem greatly overstated in the first place.

WCPC: What implications does this study have for policy makers?

Stoll: As we note in the paper, the California Department of Insurance has reconsidered how much weight should be given to place characteristics in setting car insurance premiums, arguing that it should be lowered. We think this part of the premium must be better regulated with greater oversight, and with the advent of powerful computing and advanced actuarial techniques in assessing risks and premiums, this practice of regulation should be less costly now than ever before, but should produce great consumer benefits, as well as conform with state and federal antidiscrimination policy.