A central role of state insurance departments is assuring thatprices are not inadequate, excessive or unfairly discriminatory, aswell as that availability of coverage is not limited by unfairdiscrimination. Yet ameliorating unfair discrimination depends onthe capacity of state regulators to collect and analyze data thatmost do not currently possess.

Collecting adequate data and analyzing that information areessential in meeting the standards set by the state accreditationprogram established by the National Association of InsuranceCommissioners. As the program's "Summary," under the heading"Market Analysis," states on page 2:

"Each accredited insurance department shall have adequate andeffective procedures in place for data collection and regularlyscheduled in-depth analysis of relevant data in order to identifyregulated entities/practices which may require furtheranalysis."

Yet regulators will be unable to ensure the absence of unfairdiscrimination in the pricing and availability of insurance withoutthe use of two forms of data gathering and analysis. Paired-testingand Home Mortgage Disclosure Act-like disclosure for homeinsurers--as well as the capacity of regulators to analyze suchdata--should be essential elements in any accredited market conductexamination.

Fair-housing and other civil rights organizations have long usedpaired testing to provide the most definitive evidence of thepresence or absence of unlawful (and in the case of the insuranceindustry, unfair) discrimination.

The basic concept is fairly simple. Teams of "mystery shoppers"are sent to the same service providers to inquire about a givenproduct or service. Each team consists of individuals or coupleswho are similar in every respect (for example, income, creditrating, employment status, etc., in the case of housing) except forthe trait being tested.

In the case of tests for racial discrimination in housing, whiteand non-white individuals would visit the same real estate orrental agency and inquire about similar housing. Since theseindividuals are equally qualified and virtually identical in everyrelevant way except their race, a reasonable assumption is thatthey would be treated the same in the marketplace.

If they are not, because all variables except race have beencontrolled, it can be assumed that racial discrimination has playeda role.

Fair housing law enforcement organizations and fair housinggroups have used this tool to identify unlawful and unfairdiscrimination against several major homeowners insurers. Theincontrovertible data gathered in this way resulted in significantchanges in how these insurers market, underwrite, price andgenerally serve their communities.

This has resulted in the amelioration of unfair pricing, whilebolstering access to products and services to qualified familieswho previously did not have such access--as well as opening up new,profitable markets for insurers.

Perhaps more importantly, initially confrontational relationsbetween some insurers and some consumer groups have evolved intomutually profitable partnerships.

For example, after settling a fair housing complaint with theU.S. Department of Housing and Urban Development, State Farm andthe National Fair Housing Alliance are currently collaborating on amedia campaign to promote the benefits of living in diverse,integrated communities.

In addition, following a jury verdict against Nationwide in afair housing lawsuit filed by NFHA member Housing OpportunitiesMade Equal, these organizations now work together on a regularbasis to expand the availability of insurance products tounderserved markets.

The collection and analysis of such data, whether doneinternally or through contractual arrangements with qualifiedorganizations, should be a requirement for the NAIC's accreditationof any state regulatory program.

As for HMDA-like disclosure, understanding how well an insurerserves a market requires understanding precisely where products andservices are being provided, and where they are not.

Just as the Home Mortgage Disclosure Act has long requiredmortgage lenders to publicly disclose the number and type of loansthey make by census tract, property insurers should be required todisclose by census tract the number of policies they write, renewand cancel, along with the number of applications they deny andpolicies they nonrenew.

(For more details about this, see our Final Say, "MoreTransparency Needed In Sale of Homeowners Insurance," on page 34 ofNU's April 21, 2008 edition.)

Mortgage lenders and regulators attest to the fact that HMDAdata have enabled them to serve their markets better and providemore effective regulation. And dozens of effective partnershipsinvolving financial institutions and community groups have emergedin recent years.

The limited ZIP code disclosure requirements for insurers inselected states have had similar outcomes.

Wisconsin's ZIP code data was used as part of the evidence thatled to a settlement of a fair housing lawsuit against AmericanFamily for discriminatory underwriting practices in Milwaukee. Thisagreement subsequently led to an effective partnership involvingAmerican Family, the local NAACP and other community organizations,resulting in access to insurance for previously underservedcommunities and new marketing opportunities for the insurer.

Developing the capacity to collect and analyze these data, orcontracting with qualified organizations to conduct such workshould also be a requirement for the NAIC accreditation of a stateregulatory program.

The ability to detect unfair discrimination should be a criticalcomponent of any market conduct exam. Having effective proceduresin place for the collection and analysis of relevant data isessential for any such evaluation.

Having the capacity to generate and utilize paired testing andHMDA-like data constitute key components of that effort.