HUD Finalizes Disparate-Impact Criteria; Insurers Claim Regulatory Overreach

The Department of Housing and Urban Development has finalized a federal regulation it says introduces uniform “disparate-impact” criteria to the sale of homeowners insurance, prompting claims of “regulatory overreach” by industry officials.

According to HUD, the rule establishes a consistent standard for assessing claims that a facially neutral practice violates the Fair Housing Act.

Under a three-part test, the charging party or plaintiff first bears the burden of proving its prima facie case that a practice results in, or would predictably result in, a discriminatory effect on the basis of a protected characteristic. At the same time, HUD says that a housing practice with a discriminatory effect would still be lawful if supported by a “legally sufficient justification.”

Officials of the National Association of Mutual Insurance Companies, however, say the rule “threatens the ability of insurers to distinguish between risks, and could ultimately mean higher costs for consumers.”

A NAMIC spokesman adds that the trade group and its members “will explore and pursue all viable options to challenge the rule.”

An official of the Property Casualty Insurers Association of America says the rule “puts in jeopardy the use of longstanding, sound, state-approved actuarial factors that are the foundation of responsible insurance underwriting.”

Despite the effort by HUD to give companies serving the housing market some leeway, Jimi Grande, senior vice president of federal and political affairs for NAMIC, says that the final rule “is an unacceptable overreach by an agency that has no authority to regulate property and casualty insurance.”

He says that, if allowed to stand, “this rule could undermine the entire process of insurance underwriting, effectively blinding insurers as they attempt to determine potential risks and appropriate pricing, and needlessly raising costs for all consumers."

Grande interprets the rule as codifying the use of disparate-impact analysis to prove allegations of unlawful discrimination with regards to homeowners insurance, “meaning any factor used by insurers to assess risk could be challenged if it produces statistically disproportionate outcomes among particular demographic groups.”

Leon Buck, PCI’s assistant vice president, federal government relations, notes, “States already prohibit discriminatory practices and have comprehensive enforcement, but the HUD rule puts in jeopardy the use of longstanding, sound, state-approved actuarial factors that are the foundation of responsible insurance underwriting.”

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