Insurance redlining and the racially discriminatory consequences ! When Congress passed the federal fair housing act in 1968 it stated its intention "to replace the ghettos with truly integrated and balanced living patterns." This sweeping legislation was enacted in part because Congress recognized that the reality of housing discrimination had become less a matter of explicit racial prejudice and more the result of subtle biases in various institutional sectors of the nation's housing industry. While overt bigotry has certainly not disappeared, subsequent research has confirmed the prevalence of diverse institutional practices which, though not necessarily racially motivated, have served to reinforce dual housing markets in cities across the United States. Redlining by insurance companies constitutes one set of such practices. Though the term "redlining" is most 64 The Review of Black Political Economy / Winter 1988 commonly associated with certain discriminatory practices by lending institutions, property/casualty insurance companies have exhibited similar behavior in their underwriting activities. This study examines the process of insurance redlining in one major midwestern city. In each of the key sectors of the housing industry, explicit, intentional racially discriminatory practices have gradually given way to subtle forms of bias. Compliance with racially restricted covenants by realtors has given way to racial steering. Explicit utilization of race in mortgage lending and appraisal practices has given way to underwriting decisions based on neighborhood characteristics such as the age and value of housing, which have similarly adverse effects on minority communities." Whereas insurers formerly used racial classifications to evaluate potential consumers, they too now use neighborhood characteristics in a manner that adversely affects minority communities." INSURANCE REDLINING, URBAN DISINVESTMENT, At least since the mid-1960s, when several urban areas experienced race riots, revolts, and other forms of civil disobedience, many insurers have concluded that urban communities are uninsurable. Underwriting manuals have frequently included maps with red lines drawn on them to indicate areas where policies should not be written, or should be written only after careful examination, and frequently at higher cost or with special exclusions. The racial composition of the neighborhoods within the red lines was frequently cited as the justification for such policies.' Growing awareness of the problems associated with insurance redlining generated protest activity and other forms of direct action by community groups against the practices of insurers, regulators, and elected officials around the nation. In response to this pressure, government agencies at all levels launched their own investigations. Lawsuits charging insurers with unlawful racial discrimination in violation of the federal fair housing act have been won (Dunn v. Midwestern 427 F. Supp. 1106 (S.D. Ohio 1979). Several states passed anti-redlining laws, community groups negotiated reinvestment commitments with some insurers, and many urban residents formerly denied coverage have been able to obtain insurance.10 The industry itself responded with its own analyses of the problems and voluntary programs aimed at better informing the public about the nature of the insurance industry." And all parties to the debate have utilized available academic research on redlining and related issues. 12 ter 1988 Squires and Velez 65 ending d sim es the ional orms has end sed ing eas m d The substantive focus of most research has been on the outcome of insurance industry practices and the range of social costs associated with insurance redlining. Biases in the industry's perception and treatment of urban communities, particularly those with large minority populations, have been widely documented.13 The high price or unavailability of adequate insurance has been linked with greater difficulties in purchasing and maintaining homes or businesses, exacerbating disinvestment and contributing to the decline of urban communities. 14 And insurance redlining has often been found to constitute a violation of federal and state fair housing laws and other civil rights and unfair trade practices acts. 15 Much has been learned, though much debate remains, regarding the conditions that give rise to redlining and the effects of such practices. The focus of this research is on the immediate practice of redlining; the communication that occurs when residents call agents and ask for an insurance policy. This study examines the process of discrimination on the part of property/casualty insurance companies. TESTING FOR RACIAL DISCRIMINATION-DATA AND A recent study of the distribution of homeowners' policies written by major insurers in Milwaukee County found a strong and statistically significant bias against inner city minority communities and for white suburban areas. In that study the number of homeowners' policies written in Milwaukee neighborhoods was associated with the racial composition of those communities even after the effects of family income, poverty level, age of housing, and rate of residential turnover were taken into consideration. In recent years the Metropolitan Milwaukee Fair Housing Council has received several complaints from residents charging insurance companies with racial discrimination when their policies were not renewed, despite good claims records. In light of these developments the fair housing council conducted a test of three large insurance companies between the months of March and May, 1986.18 Eight teams of testers, individuals who would pose as homeowners interested in purchasing homeowners' insurance, were trained. Four teams had two members and four teams had three members. Within each team one member represented a predominantly white neighborhhood and one or two people represented an integrated or predominantly minority area. (Responses on virtually all items to callers from integrated or predominantly minority areas were not significantly different. Therefore, 66 The Review of Black Political Economy/Winter 1988 they will be treated as one category.) Within each team all members were matched in terms of income, occupational status, construction and value of home, claims experience, and other personal, property, and neighborhood characteristics that affect an individual's insurability. The only difference among team members was the racial composition of the neighborhood in which they purported to reside. Obviously, identical matches in terms of the insurability of testers were virtually impossible to secure. Where differences did occur, however, the member from the predominantly white neighborhood would have the slightly less attractive objective characteristics. For example, where differences in the age of the home occurred, it would be the caller from the predominantly white neighborhood who lived in the relatively older home. Or if incomes differed, the tester from the white neighborhood would report the lower income. Such a procedure, of course, provides a built-in bias against a finding of discrimination on the basis of the racial composition of the neighborhood. Any finding of such discrimination, therefore, would constitute an underestimate of the actual extent of discrimination that may prevail. Each team member contacted the three insurance companies to request information on how to obtain a homeowners insurance policy. A total of 60 tests, 24 from white communities and 36 from nonwhite or integrated areas, were completed. During each test call, testers took detailed notes and then completed a questionnaire on the contents of the phone call. The objective was to determine whether or not insurers treat individuals differently on the basis of the racial composition of the neighborhood in which they reside. FINDINGS The major conclusion to be drawn from these tests is that agents exhibited more eagerness to sell insurance policies to testers representing white neighborhoods and placed more hurdles in the paths of callers from integrated or minority areas. Equally significant, however, was the absence of blatant discrimination or outright refusal to offer policies in neighborhoods of any particular racial composition. The most consistent finding of these tests was the agents' interest in geographic location. Each agent obtained the street location of testers and in 93.3 percent of the tests the first, or one of the first, questions asked by the agent was the specific address or zip code of the caller. Neighborhood clearly remains a central consideration in the sale of property insurance. Agents frequently asked testers for information on the age, value, con |