complex. Another contributing factor is the perpetuation of racial stereotypes that dominates much of the thinking and subsequent behavior within the industry. As a sales manager for the American Family Insurance Company advised several agents in 1988: Your persistency went down the shitter... Very honestly, I think you write too many blacks... You gotta sell good, solid premium paying white people...they own their homes, the white works... Very honestly, black people will buy anything that looks good right now...but when it comes to pay for it next time...you're not going to get your money out of them...the only way you're going to correct your persistency is get away from the blacks. Many traditional industry underwriting practices which may have some legitimate business purposes also adversely affect racial minorities and minority neighborhoods. Many companies have minimum value and maximum age requirements for properties to qualify for their homeowners policies. Often, for example, a home would be disqualified if it was valued at $25,000 or $35,000 or less or was constructed before 1950. Given the realities of residential segregation, racial minorities are far more likely to live in such homes and, therefore, to be excluded by these rules. But there are many underwriting rules and guidelines which are clearly subjective and for which it is unlikely that there is any systematic research to justify their use. Examples include the following statements that were taken from company underwriting manuals and guides: Coverage may not be bound on the following classifications without prior approval...professional athletes, musicians, or entertainers. Following occupations not to be approved for preferred policies: janitors, stewardesses, traveling salesmen, auto salemen (particlarly RED FLAGS FOR AGENTS AND CLAIMS PERSONNEL... 4. Declining property values... b. Population or racial changes More significant than the written rules is the subjective manner in which they are implemented, as the evidence from tests or audits frequently indicates. By tests or audits I am referring to studies where matched pairs of callers (individuals who report the same income, credit history, and other financial considerations and are shopping for the same insurance coverage for the same type of home in terms of market value, structure, and condition but who differ only in their race or the racial composition of the neighborhood in which the home is located) contact insurance agents posing as insurance consumers. As the recent report by ACORN and other similar studies have found, the caller from the white community is generally quoted a price and offered a policy over the phone with the agent enthusiastically trying to sell the policy. But the caller from the minority neighborhood is often told an agent is not available but will call back (with the calls frequently not returned), not provided a quote over the phone, told that an inspection will be necessary, referred to the FAIR Plan, and in many other ways discouraged from pursuing the policy. Not only do existing studies confirm these patterns, but sympathetic agents (usually racial minorities) anecdotally confirm these practices as common with their white colleagues. A critical factor in the marketing of insurance is the location of agents. Most of the property Insurance policies anld hy most agenta are to insureds within the neighborhood in which the agent is located. In our study of agent location in Milwaukee we found that in 1970, 1980, and 1990 the distribution of agent locations was clearly associated with racial composition of neighborhoods and, again, that relationship remained after taking into consideration the number of owner occupied housing units, age and condition of homes, and income of residents. To illustrate, the racially integrated neigh borhood of Sherman Park on Milwaukee's west side changed from 1 percent nonwhite to 24 percent non-white between 1970 and 1980 and the number of insurance agents changed from 22 to 9. Several actions can be This raises the question of what can be done. taken to ameliorate the problems of insurance redlining. comprehensive disclosure requirements are essential. First, more Only a few states require geographic disclosure of policies at all, and those rules only require aggregate zip code level disclosure. Mortgage Disclosure Act can provide guidance. Each property insurer should be required to disclose the following information for each application: race, gender, and income of the applicant; census tract, age, structure (e.g. brick or frame), and value of property; disposition (whether the application was approved or denied), and type (e.g. fire insurance, HO-3), value, premium, deductible, exclusions, and other terms of the policy. This information should be publicly available in a user friendly format for community groups, researchers, and others, and widely utilized by enforcement agencies. Current reporting requirements under the Home This information does not address the prescreening that occurs prior to submission of an application where most of the discrimination may actually be taking place. Far more comprehensive testing programs should be initiated to continually monitor such practices and any changes that may be occurring. The U.S. Department of Housing and Urban Development and the Civil Rights Division of the Department of Justice could be far more active in prosecuting insurance redlining under the federal fair housing act, other statutes that prohibit unfair trade practices and Constitutional guarantees for equal rights to make and enforce contracts and to buy and sell real property. The federal role could take several forms. The agencies themselves could initiate investigations and file suits where appropriate. additional funding for local non-profit fair housing groups to expand the work they are already doing in this area. And they could provide A Community Reinvestment Act for insurance would also be effective. Currently, insurance is regulated by the states. State insurance commissioners often approve rates, underwriting changes, and new products, and perform several regulatory functions primarily to assure the solvency of insurance companies. Approvals requested by insurers along with other actions like the addition of could be conditioned on adequately serving all parts of their "service areas. " new agents for lenders. State regulation of insurance is notoriously weak, however, on consumer issues. This raises the question of whether or not the federal government should begin to develop a regulatory structure similar to what currently exists Debates over the proposed repeal of the McCarran-Ferguson Act, which virtually exempts insurers from federal regulation, have a long history. Short of repeal, perhaps insurers could be licensed at the federal level, with one condition of maintaining the license being service to low- and moderateincome areas similar to the requirements of the CRA. The primary value of such an approach would be to empower community groups to begin leveling the insurance playing field as has begun in the case of mortgage lending. There are other issues that need to be addressed. The underwriting rules and guidelines should be subject to public disclosure requirements and closer scrutiny by law enforcement agencies. Investment practices must be brought into the redlining debate. The insurance industry controls approximately two trillion dollars and much of its profits are derived from investments. Some insurers have entered into partnerships with community groups in which company investments in low-income housing, small business loans, and other urban development projects were as significant as commitments to provide insurance in previously redlined communities. And employment practices by insurers should be examined. In 1990, according to the U.S. Equal Employment Opportunity Commission, 23 percent of the total private sector workforce was non-white compared to just 17 percent among property/casualty insurance companies. While no systematic research has been conducted on the link between racial composition of the work force and service to minority communities, anecdotal evidence from discussions with many agents strongly suggests that bringing more racial minorities into the work force will be conducive to better service in currently distressed areas. Redlining undermines urban redevelopment efforts, it locks people out of critical markets simply because of skin color, and it contributes to the concentration of poverty and rise of underclass behavior in urban America. The policy and practice of insurance redlining further confirm the fact of institutional discrimination and the centrality of structural causes of urban poverty rather than the culture of poverty theories so popular in recent years which simply blame the victims for their plight. |