NAMIC: Proposed HUD Rule Jeopardizes Risk-Based Underwriting

NU Online News Service, Jan. 18, 3:33 p.m. EDT

A proposal by federal-housing regulators to bar housing practices with a potential discriminatory effect would force home insurers to stop using risk-based underwriting factors, the National Association of Mutual Insurance Companies says in a comment letter.

The letter was sent to the Department of Housing and Urban Development as comment on a proposal that would bar “prohibit housing practices with a discriminatory effect, even where there has been no intent to discriminate.”

NAMIC says in the comment letter, “If adopted, the rule would effectively force insurers to abandon the use of risk-based underwriting factors if they have a 'disparate impact' on particular racial and ethnic groups.”

Robert Detlefsen, NAMIC's vice president of public policy, says in the letter that compliance with the proposed rule would cause insurers to run afoul of state-insurance laws, which require insurers to classify insureds solely on the basis of risk.

To avoid the possibility that its underwriting process would produce a disparate impact, an insurer would have to subordinate considerations of risk to considerations of race, Detlefsen says.

The Fair Housing Act, which HUD cites as the authority for its proposed rule, makes it unlawful to “refuse to sell or rent” or “otherwise make unavailable or deny” housing to a person because of a protected characteristic, including race, Detlefsen says.

 “But a plain reading of the act makes clear that its purpose is solely to prohibit discriminatory treatment of individuals because of their race,” he explains. “It says nothing about non-discriminatory practices whose outcomes or effects vary statistically among groups.”