Let The Sun Shine In On Property Insurance

Twenty-five years ago, when redlining and racial discrimination were widespread in the mortgage lending market, the federal government responded by passing the Home Mortgage Disclosure Act requiring most lenders to publicly reveal the census tracts in which they were making loans. Two years later the Community Reinvestment Act was passed banning redlining.

HMDA and CRA are credited by the National Community Reinvestment Coalition with generating over $1 billion in new loans for older urban neighborhoods around the country.

Redlining and discrimination have long permeated property insurance markets, but nothing close to even minimal disclosure requirements have ever been required by the federal government for this industry. A modest disclosure bill was passed by the House in 1994, and another version is currently under consideration. The time has long passed for HMDA-like disclosure for the property insurance issue.

Evidence of urban insurance availability problems has surfaced, despite the absence of ongoing, systematic public disclosure of where policies are, and are not written. Consumer groups have settled discrimination complaints with several major property insurers.

The National Association of Insurance Commissioners examined the distribution of property insurance policies in 33 metropolitan areas. The researchers found that the number of policies and the cost of policies were significantly associated with the racial composition of neighborhoods, and these relationships held even after taking risk exposure and loss experience into account.

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

Offered policies with less coverage yet higher prices to the minority tester.

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

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

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

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

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

I recently directed a survey of all state insurance commissioners soliciting information on what geographic disclosure data they collect and make available to the public. The findings were most limited. Only eight states collect any data at all, and in each case they are collected at the ZIP code rather than census tract level. Data on individual insurers are available in just four of these states. The rest provide aggregate data on the larger insurers in the state.

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

Application data are collected in one state, but in that case users have to go to the office to view the information. Six states provide at least some data online. While some data is available for free, there is generally a cost and it varies widely.

All of this must be viewed in comparison with HMDA, which provides 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 at the census tract level. Much of the information is available for free online and for minimal costs on compact disks or in hard copy. And now the Federal Reserve Board is considering new rules that would require disclosure of the annual percentage rate of all loans.

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

The National Insurance Task Force of the Neighborhood Reinvestment Corp., which includes most major insurers, has launched loss prevention partnerships with community-based organizations in six metropolitan areas.

The Independent Insurance Agents of America invited the National African American Insurance Association and the Latin American Association of Insurance Agents to participate in its 2000 convention and is assisting minority agents in securing contracts with major insurers.

Earlier this year, Reps. Tom Barrett, D-Wis., and Luis Gutierrez, D-Ill. introduced the Community Reinvestment Modernization Act calling for HMDA-like disclosure requirements for the property insurance industry.

Absent the systematic disclosure of where property insurance policies are being sold, it is difficult to determine how successful various voluntary and law enforcement initiatives have been, and can be. In addition, such information can help insurers find new market opportunities. Community organizations can more effectively identify potential partners for future collaborative efforts. And regulatory agencies can more effectively target scarce enforcement resources.

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

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

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

Contact Webmaster

Special Reports /

Let The Sun Shine In On Property Insurance

Related Stories

Recommended For You