Redlining 2.0: The Hidden Cost of Owning a Home While Black

For Black homeowners, protecting the family home can come with a hidden surcharge.

In Michigan, homeowners in predominantly Black neighborhoods pay an average of 74% more for the same homeowners insurance coverage than people living in predominantly white neighborhoods — the largest racial premium gap in the nation.

And Michigan is hardly alone.

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Nationwide, homeowners in Black communities pay an average of $500 more each year for the same coverage, according to a new Consumer Federation of America analysis. Even after researchers accounted for environmental risk, housing age, density and insurance claims, a sizable gap remained.

That means Black homeowners can pay more for the very protection designed to preserve their biggest source of wealth — even as climate change puts many historically Black neighborhoods at greater risk of damage.

Black Homeowners Disadvantaged

The report, “Redlined: The Persistence of Racial Inequality in the Cost of Homeowners Insurance,” found that Michigan has the worst premium gap for Black neighborhoods of any state. But it’s a problem that exists to some degree everywhere, with home insurance costing 16% higher in Black neighborhoods compared to predominantly white areas. 

On average, that’s $500 more per year for people living in Black neighborhoods, or $15,000 over a 30-year mortgage. With home insurance rates skyrocketing due to climate change, Black people are at a huge disadvantage with the market already priced against them. 

The disparity matters because homeowners insurance is supposed to be a financial backstop against disaster, yet Black homeowners can face higher costs for that protection even as climate change disproportionately increases the threats to homes in Black neighborhoods. Historically, Black neighborhoods are often more exposed to flooding, extreme heat, and other climate hazards, in part because decades of segregation, redlining, and disinvestment shaped where Black families could buy homes and how much infrastructure those communities received.

The report calls the insurance premium gap a form of redlining. With AI algorithms now influencing rates, the practice may be getting worse. 

For its part, the insurance industry disputes the suggestion that race drives those differences.

‘Unwilling to Self-Correct’

Mark Friedlander, a spokesman for the Insurance Information Institute, told Inside Climate News that insurers base premiums on risk, not race or ethnicity. Using race or a proxy for race to determine rates is illegal, he said, and state regulators review the factors companies use to set premiums. Many of the communities identified in studies of racial disparities also face greater exposure to catastrophes or higher rebuilding and repair costs, Friedlander said.

But the Consumer Federation of America says those differences don’t fully explain the gap. 

After researchers controlled for environmental risk, housing age and density, claims frequency and severity, and differences among states, homeowners in predominantly Black communities still paid an average of 10% more.

The study’s authors advocate policy changes to price homeowners insurance more equitably, including regulations that would prohibit insurance companies from setting rates based on small geographic areas such as a ZIP code or census tract.

“Insurance companies should be changing their pricing models to end the redlining-by-overcharging that we see in the data, but since they seem unwilling to self-correct, state regulators should be stepping in to demand change,” co-author Douglas Heller said in a statement. “Buying insurance is required of every homeowner with a mortgage, which creates a special obligation on policymakers to scrutinize this market.”  

Still, “this pattern of racial discrimination by insurance companies has not gotten the scrutiny it needs from the lawmakers and insurance commissioners who are supposed to protect consumers and communities,” Heller said. 

Highest Premium Gaps

In addition to Michigan, states with the highest premium gaps in Black neighborhoods are Pennsylvania (57%), New Jersey (22%), Massachusetts (20%), and New York (19%).

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The report compared identical policies across ZIP codes to compare average premium rates. Even when looking at factors influencing rates that don’t have to do with race, the report found that Black people in Black neighborhoods were still paying more. 

“After controlling for state-level differences,” the authors write, “as well as for neighborhood-level differences in environmental risk, housing age, housing density, claim frequency and claim severity, homeowners in Black communities still pay a 10% higher premium on average.”

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