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

The rule could undermine the underwriting process and “trigger awave of frivolous litigation,” according to officials at theNational 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 itcomes to determining housing practices with a discriminatoryeffect,” NAMIC officials say.

But Jimi Grande, senior vice president of federal and politicalaffairs for NAMIC, says that several members of Congress havelabeled the proposed rule excessive, and a group of state lawmakershas opposed it as an encroachment on the states' right to regulateproperty and casualty insurance.

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

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

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

A proposed rule was published for comment in late 2011. HUDintends to publish a final rule next month, according to aregulatory agenda released by the Office of Management andBudget.

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

Grande argues that risk differentiation is essential to thebusiness of insurance, and the pricing of insurance products thatunintentionally produce statistical disparities among groups bearno resemblance to discrimination “because of race, color, religion,sex, or disability.”