A federal regulation introducing “disparate impact” criteria to the sale of homeowners insurance will be finalized next month, according to industry officials.

The rule could undermine the underwriting process and “trigger a wave of frivolous litigation,” according to officials at the National Association of Mutual Insurance Companies.

“HUD [the U.S. Department of Housing and Urban Development] claims that it is just making clear the rules of the road when it comes to determining housing practices with a discriminatory effect,” NAMIC officials say.

But Jimi Grande, senior vice president of federal and political affairs for NAMIC, says that several members of Congress have labeled the proposed rule excessive, and a group of state lawmakers has opposed it as an encroachment on the states' right to regulate property and casualty insurance.

“This rule would allow a federal agency with no authority to regulate insurance to overstep the rightful jurisdiction of the states, trigger waves of litigation and ultimately raise costs for consumers, without actually increasing protections for homeowners,” Grande says.

“NAMIC will continue working to prevent it from being finalized in its current form, and will take other steps as needed in the event it is imposed by HUD.”

It would apply a standard to make any practice that results in a disparate impact for a protected class, for example race, color, religion, sex, familial status, or national origin, a violation of the Fair Housing Act, a NAMIC official says.

A proposed rule was published for comment in late 2011. HUD intends to publish a final rule next month, according to a regulatory agenda released by the Office of Management and Budget.

Grande says that the rule ignores the question of intent, meaning that any disparate impact could be treated as discriminatory and subject to penalties or litigation, regardless of how it came about.

Grande argues that risk differentiation is essential to the business of insurance, and the pricing of insurance products that unintentionally produce statistical disparities among groups bear no resemblance to discrimination “because of race, color, religion, sex, or disability.”

Special Reports /

NAMIC Voices Concern with HUD 'Disparate Impact' Rule

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