Insurers Balk At CRA Expansion

Insurers would have to meet the same legal requirement as banks for investing in minority neighborhoods under legislation being crafted by two House lawmakers.

The representatives--one black and the other Hispanic, who both hail from districts with a preponderance of minority residents--have alerted colleagues they intend to introduce legislation that would place Community Reinvestment Act mandates on insurance companies.

In reaction, representatives of several property-casualty insurance groups said they would oppose the bill, contending such a mandate is inappropriate for insurers.

Plans by Democratic Reps. Eddie Bernice Johnson, Texas, and Luis Gutierrez, Illinois, to introduce the CRA requirement bill in the House were outlined in a "Dear Colleague" letter obtained by National Underwriter.

In seeking co-sponsors for the "Community Reinvestment Modernization Act of 2007," the two members said "applying CRA broadly throughout the financial industry will leverage trillions of additional dollars for wealth building, homeownership, small-business ownership, and economic development in working class and minority neighborhoods," they said.

Extending CRA, they added, would make "capitalism thrive in all neighborhoods by making financial markets more transparent and equitable."

But Justin Roth, a director of federal affairs lobbying at the National Association of Mutual Insurance Companies, said NAMIC does not believe CRA is "applicable in the insurance industry."

He explained that insurers do not unfairly discriminate against low-income and minority areas. "They provide auto and homeowners insurance based strictly on sound actuarial principles," he said.

"This legislation would only harm insurance companies and the policyholders they serve by preventing them from utilizing their assets in a manner that would maximize their ability to pay any future claims," Mr. Roth said.

Cliston Brown, director of federal public affairs at the Property Casualty Insurers Association of America, added that "we have seen how catastrophic losses can occur unexpectedly and require immediate response from insurers to settle claims, and as a result, property-casualty insurer investment portfolios must be extremely liquid."

He explained that CRA investments tend not to provide this kind of liquidity, adding that mandatory investments in these types of securities will reduce the amount of funds insurers will have available to pay policyholder claims--especially in emergency situations, in which insurers need to make immediate payments.

"As a result, the proposed legislation's unintended consequences could create unnecessary hardships for policyholders in need," Mr. Brown said.