INSURANCE REDLINING, GREGORY D. SQUIRES WILLIAM VELEZ University of Wisconsin-Milwaukee KARL E. TAEUBER Insurance redlining exacerbates economic decline and impedes revitalization of urban neighborhoods throughout the United States. One significant barrier to the availability of insurance is the movement of sales representatives from inner-city to suburban locations. In examining the changing pattern of insurance agency locations within the Milwaukee metropolitan area, the authors find that racial composition of neighborhood is associated with agency location even after the effects of family income, condition of housing, and number of dwellings are controlled. Policy recommendations are offered to mitigate the practice and effects of insurance redlining and to stimulate reinvestment in urban communities. Racial discrimination in the sale of homeowner's insurance has been documented as a fact of life in the nation's housing markets and as a barrier to economic redevelopment of urban communities nationwide (Yaspan 1970; Federal Insurance Administration 1978; Badain 1980). Problems with the availability of homeowner's insurance in cities throughout the United States AUTHORS' NOTE: We gratefully acknowledge the financial support provided by the Urban Corridor Consortium of the University of Wisconsin, the Institute on Race and Ethnicity at the University of Wisconsin, the Department of City Development of the city of Milwaukee, and the Milwaukee Foundation. We also want to thank our research assistant, Brilton Rodriguez, a graduate student in the Department of Geography at the University of Wisconsin-Milwaukee, for his many contributions. Robert Haase, the insurance commissioner of the state of Wisconsin, also provided valuable assistance in our research. Finally, we want to express our appreciation for the assistance of Jean Zamorski and Donna Schenstrom of the Cartographic Services Laboratory at the University of Wisconsin-Milwaukee and of Janice Deneen of the Center for Demography and Ecology at the University of Wisconsin-Madison. URBAN AFFAIRS QUARTERLY, Vol. 26 No. 4, June 1991 567-588 ©1991 Sage Publications, Inc. 568 URBAN AFFAIRS QUARTERLY / June 1991 have been documented in academic research (Byrne 1980; Steger and Biersack n.d.), government studies (Midwestern Regional Advisory Committees to the U.S. Commission on Civil Rights 1979), and in industry studies (Advisory Committee to the NAIC Redlining Task Force 1978). The distribution of homeowners insurance policies has been found to be biased in favor of predominantly white suburban communities (Squires and Velez 1987), in part-in one city - because agents more eagerly seek out business in white communities than they do in nonwhite communities (Squires and Velez 1988). Racial discrimination and uneven development have long been sources of concern to scholars, public officials, and residents of cities throughout the United States. These issues are particularly salient in Milwaukee; a report by the Action 2000 Committee (1989, 1, 4), which was composed of prominent business, government, and other civic leaders in Milwaukee, concluded that until the effects and sources of racism are acknowledged, addressed, and overcome, the metropolitan region will be unable to make substantial progress in achieving its desirable goals. . . . Many factors contribute to the widening gap between the "haves" and "havenots" here, but racist practices are something each of us, individually and institutionally, can address. Racial segregation has been documented on several fronts in Milwaukee in recent years. Noting that 97.5% of all blacks in the Milwaukee metropolitan area live within the city of Milwaukee, which is the highest proportion among the 50 metropolitan areas with the largest black populations, researchers for the Milwaukee Urban League concluded that "Milwaukee leads the nation in racial segregation" (McNeely and Kinlow 1987, 41). More recently, Milwaukee was found to be one of the nation's 10 hypersegregated cities because of the high degree of segregation in housing patterns on a range of indices (Massey and Denton 1989). The ratio of black to white rejection rates for mortgage loans recently was found to be higher in Milwaukee than in any other of the nation's 50 largest cities (Dedman 1989). Black unemployment and the ratio of black to white unemployment rates in Milwaukee are consistently among the two or three highest in U.S. cities (Norman 1989). City officials have acknowledged the links between increasing housing costs for the community's minority population, the loss of manufacturing jobs, and rising poverty while downtown redevelopment and suburban growth are taking place (Department of City Development 1987). Unavailability of, and inequitable access to, homeowners insurance exacerbate these trends and create problems for many individual families. These problems clearly are linked to the chain of forces contributing to uneven development and racial inequality in Milwaukee and throughout urban America. Squires et al. / INSURANCE REDLINING 569 Insurance availability problems in urban communities arise from several factors. The perception - if not the reality-of greater risk discourages some property/casualty insurance companies from pursuing any business in such neighborhoods. Some companies will not provide insurance for older homes or will only do so on more onerous terms, which is a practice that adversely affects many urban communities, particularly those with large concentrations of minority residents. For example, in the Milwaukee neighborhoods where racial minorities account for 24% or more of the population, over 49% of the housing units were built before 1940, but less than 35% of housing units were built before 1940 in areas where the minority population was less than 24% (U.S. Bureau of the Census 1980; City of Milwaukee 1985). Minimum policy requirements under which some insurers will not provide coverage for homes valued at less than $35,000, $45,000, or some similar threshold discourage the sale of homeowners insurance to residents of less expensive homes, which also adversely affects city residents, particularly those in minority communities (Schachter 1981; Midwestern Regional Advisory Committees to the U.S. Commission on Civil Rights 1979). Again, Milwaukee is illustrative. In 1988, 21% of all single-family housing units in Milwaukee were valued at $35,000 or less, but in those community areas where the minority population exceeded the citywide proportion of 26%, more than 78% of the single-family homes were valued at $35,000 or less.' Blatant racial discrimination remains a factor in the sale of homeowners insurance. The sales manager of a major insurance company in Milwaukee told several agents, "I think you write too many blacks. . . . You gotta sell good, solid premium-paying white people" (Ziehlsdorf et al. v. American Family Insurance Group, 88CV1082, Waukesha County Circuit Court, 1988). Another critical factor is "selective placement of agents" (Office of the Commissioner of Insurance of the State of Wisconsin 1978, 11). Insurance agents generally locate in those areas where they intend to write most of their business. To document the strength of this business practice, we surveyed a random sample of property/casualty insurance agents in the Milwaukee metropolitan area. Approximately 32% of the homeowners policies sold by survey respondents in 1988 were bought by residents located within the same. zip code area in which the agent's office was located, and 64% were either in the same zip code area or in a zip code area immediately bordering that of the office. Suburban agents proved to be more locality focused, writing 36% of their homeowners policies within the zip code area of their offices and 68% in the same or neighboring zip code area. For city agents, the figures are 25% and 54%. There are 49 zip code areas in the metropolitan area; therefore, an equal distribution of policies would result in about 2% being written in each area. But policies are not randomly sold throughout the community. Property/casualty insurance agents are licensed to write anywhere in the state, but they clearly concentrate their business in the areas where they locate their offices. A primary consideration of agents is the availability of potential customers: people with property to insure and the financial means to purchase the insurance. Specifically, agents want to maximize their premiums (the cost of insurance policies), minimize their loss ratios (the relationship between amounts paid in losses to premiums earned), and reduce the work involved in selling policies. Gregory Krohm, an administrator in the Division of Regulation and Enforcement of the Office of the Commissioner of Insurance of the State of Wisconsin, suggested that agents may solicit business more actively in suburban communities where homes have higher value and inspections generally are not required rather than in urban neighborhoods where homes have lower value and inspections are more likely to be required (Krohm 1989b). The agent survey revealed that 29% of homeowners policies sold in the Milwaukee area in 1988 were bought to cover homes valued at $100,000 or more. In the city of Milwaukee fewer than 2% of single-family dwellings were valued at this level.3 The majority of single-family dwellings (54%) were assessed by the tax commissioner's office at between $35,000 and $60,000a price range that accounted for fewer than 20% of homeowners policies sold by agents located in the city. Agents locate where they intend to do business, and they intend to do business in higher-valued neighborhoods. When agencies close down, or agents choose not to move into a neighborhood, insurers are signaling that they do not intend to serve that community (Schachter 1981). Inaccessibility to agents contributes to unavailability of insurance, even for many good risks. The Harambee Ombudsman Project, a community organization in Milwaukee that has been fighting insurance redlining of its predominantly black north-side community, obtained a grant in 1987 to provide neighborhood office space and facilities for an insurance agent. Charles Newman, the insurance agent who took advantage of this opportunity, was able to provide insurance to many neighborhood residents who previously had experienced difficulty obtaining adequate protection (Newman 1988). Location and relocation of insurance agencies affects the accessibility and availability of homeowners insurance and thus influences patterns of urban investment and disinvestment. To examine this process, we conducted the first comprehensive study of the geographic location and movement of insurers in any metropolitan area. Previous redlining research has focused Squires et al./ INSURANCE REDLINING 571 on the distribution of insurance policies and has documented the relative unavailability of insurance in urban communities. In this study we focus on one component of the redlining process. We trace the movements of agents into and out of neighborhood areas over two decades. We then examine the changing demographics of those areas and delineate consequences of redlining for the uneven economic development of cities. As a practical matter, identification of areas currently underserved or that have been losing the services of insurance agencies would enable community groups and public officials to target their efforts more effectively for preserving neighborhood housing stocks. This information can strengthen the negotiating position of neighborhood groups attempting to secure reinvestment commitments from private insurers. In addition, as indicated by James Williams, president of the board of the Cooperation West Side Association, insurers would be aided in identifying marketing opportunities (Williams 1988). DATA AND METHODOLOGY Two data sets are used in this analysis, one on insurance agencies and one on neighborhood characteristics. From the Insurance Commissioner's Office we obtained the names of the 20 largest insurers in terms of the value of homeowners insurance premiums written for 1960, 1970, and 1980 (Office of the Commissioner of Insurance of the State of Wisconsin, 1961, 1971, 1981). In all, 32 different companies were among the top 20 in one or more of the three years. Collectively, the top 20 companies account for approximately two-thirds of the Milwaukee market. Addresses of agents representing all 32 companies were obtained from the Yellow Pages for each of these years. Frequently, a single agency location was the office address of several agents representing one or several companies. If more than one agent shared an office, whether they represented the same company or different companies, that location still represented just one agency location. Locations are classified by community area within the city of Milwaukee and by suburb within the balance of the four-county metropolitan area (see Figures 1 and 2). From the U.S. Bureau of the Census the following demographic characteristics were obtained for each community area within the city of Milwaukee and for each municipality in the balance of the four-county metropolitan area for 1960, 1970, and 1980: total population, percentage nonwhite, number of owner-occupied dwellings, number of housing units lacking complete plumbing, percentage of homes built prior to 1940, median value of housing, and median family income. |