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Insurance Redlining and Transparency

posted by Daniel Schwarcz

Insurance nerds like to point out that insurance coverage is a pre-requisite to a wide range of activities, from starting a business to practicing medicine to driving a car.  In this sense, insurers often serve as gatekeepers to fundamental social privileges.  Nowhere is this more starkly illustrated than in the residential real estate context.  As one court succinctly put it: “No insurance, no loan; no loan, no house; lack of insurance thus makes housing unavailable.”  

Given the centrality of both credit and insurance to home ownership, one might expect that the rules in these two domains would similarly respond to the risk of redlining, which is the practice of denying or charging more for services in residential areas with large minority populations.  But as with coverage terms and claim handling, quite the opposite is true: whereas bank regulation has embraced transparency, insurance regulation has actively rejected it.  

Federal law has long required lenders to provide the public with robust information on the availability of home loans.  The Home Mortgage Disclosure Act (HMDA) requires most lenders to report and make publicly available geo-coded information regarding home loans, loan applications, interest rates, and the race, gender, and income of loan applicants.  This information has promoted richer understanding of credit availability and discrimination, helped identify discriminatory lending practices, and prompted various initiatives to make credit more available in traditionally under-served areas. 

By contrast, the vast majority of insurance regulators have repeatedly refused to provide the public with any HMDA-like data regarding the availability of homeowners insurance. One survey found that only four states make insurer-specific, geo-coded data publicly available for homeowners insurance, and no state makes publicly available loss or pricing data for individual insurers.  The National Association of Insurance Commissioners has repeatedly ignored requests to devise a model law that would require such data collection and dissemination. 

This is particularly troubling because the evidence that is available suggests that homeowners insurance is systematically more expensive and less available in certain low-income, urban areas.  There is also some evidence that these trends may at least partially be attributable to lingering race- and class-based stereotypes, many of which were overtly present in the insurance industry in recent decades.  But even in the absence of such intent, facially neutral insurance practices may constitute a violation of the Fair Housing Act if they have a disparate impact on protected groups and a less discriminatory alternative is available. 

Greg Squires, a Sociology Professor at GW, has written extensively on this issue.  He is now waging a campaign to convince the Federal Insurance Office, created through the Dodd Frank Act, to do what the vast majority of states have refused to do by collecting from insurers and making publicly available HMDA-like data.   .



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