Let The Sun Shine In On Property Insurance

Twenty-five years ago, when redlining and racial discriminationwere widespread in the mortgage lending market, the federalgovernment responded by passing the Home Mortgage Disclosure Actrequiring most lenders to publicly reveal the census tracts inwhich they were making loans. Two years later the CommunityReinvestment Act was passed banning redlining.

HMDA and CRA are credited by the National Community ReinvestmentCoalition with generating over $1 billion in new loans for olderurban neighborhoods around the country.

Redlining and discrimination have long permeated propertyinsurance markets, but nothing close to even minimal disclosurerequirements have ever been required by the federal government forthis industry. A modest disclosure bill was passed by the House in1994, and another version is currently under consideration. Thetime has long passed for HMDA-like disclosure for the propertyinsurance issue.

Evidence of urban insurance availability problems has surfaced,despite the absence of ongoing, systematic public disclosure ofwhere policies are, and are not written. Consumer groups havesettled discrimination complaints with several major propertyinsurers.

The National Association of Insurance Commissioners examined thedistribution of property insurance policies in 33 metropolitanareas. The researchers found that the number of policies and thecost of policies were significantly associated with the racialcomposition of neighborhoods, and these relationships held evenafter taking risk exposure and loss experience into account.

Fair housing groups around the country have conducted pairedtesting audits (where equally qualified black and white “testers”shop for insurance from the same agents) and have founddiscriminatory treatment in up to half the tests in many cases.Among the findings, agents often:

Offered policies with less coverage yet higher prices to theminority tester.

Referred the application to the home office for the minoritytester but provided immediate coverage for the white tester.

Refused to insure older or lower-valued homes which adverselyaffects minority communities.

Committed other sins of commission or omission with the resultbeing less service to minority communities.

The insurance industry is regulated by state government, butwhere relief has been successfully found it has primarily beenthrough the courts, administrative actions at the Department ofHousing and Urban Development under the Federal Fair Housing Act,or in direct negotiations with insurers. State regulators havesimply not regulated in this area.

Most discouraging is the disclosure data that are available,particular compared to what the federal government requires underHMDA.

I recently directed a survey of all state insurancecommissioners soliciting information on what geographic disclosuredata they collect and make available to the public. The findingswere most limited. Only eight states collect any data at all, andin each case they are collected at the ZIP code rather than censustract level. Data on individual insurers are available in just fourof these states. The rest provide aggregate data on the largerinsurers in the state.

Six states provide information on types of policies issued aswell as the total number of policies in each ZIP code. Lossinformation is made available in three states and cost data areavailable in five. No state makes loss and cost data available atthe individual company level. And no state provides information onthe race or gender of applicants.

Application data are collected in one state, but in that caseusers have to go to the office to view the information. Six statesprovide at least some data online. While some data is available forfree, there is generally a cost and it varies widely.

All of this must be viewed in comparison with HMDA, whichprovides data on the race, gender and income of all applicants;whether or not the application was approved; the type(conventional, government insured) and purpose (home purchase,improvement) of the loan; and all the information is available atthe census tract level. Much of the information is available forfree online and for minimal costs on compact disks or in hard copy.And now the Federal Reserve Board is considering new rules thatwould require disclosure of the annual percentage rate of allloans.

There have been some positive steps in the insurance redliningdebate, in addition to the complaint settlements.

The National Insurance Task Force of the NeighborhoodReinvestment Corp., which includes most major insurers, haslaunched loss prevention partnerships with community-basedorganizations in six metropolitan areas.

The Independent Insurance Agents of America invited the NationalAfrican American Insurance Association and the Latin AmericanAssociation of Insurance Agents to participate in its 2000convention and is assisting minority agents in securing contractswith major insurers.

Earlier this year, Reps. Tom Barrett, D-Wis., and LuisGutierrez, D-Ill. introduced the Community ReinvestmentModernization Act calling for HMDA-like disclosure requirements forthe property insurance industry.

Absent the systematic disclosure of where property insurancepolicies are being sold, it is difficult to determine howsuccessful various voluntary and law enforcement initiatives havebeen, and can be. In addition, such information can help insurersfind new market opportunities. Community organizations can moreeffectively identify potential partners for future collaborativeefforts. And regulatory agencies can more effectively target scarceenforcement resources.

Disclosure constitutes a win-win strategy. It is time to let thesunshine in on the property insurance industry.

Gregory D. Squires is chairman of the Department ofSociology at George Washington University in Washington, D.C., andco-author of “Color and Money: Politics and Prospects for CommunityReinvestment in Urban America.”

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, September 10,2001. Copyright 2001 by The National Underwriter Company in theserial publication. All rights reserved.Copyright in this articleas an independent work may be held by the author.

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