Next Target: Insurance Redlining

Bank reform offers a chance to address an under-the-radar form of redlining with the same sort of data disclosure HMDA requires about mortgage lending.

This is the time for the federal government to finally collect from the insurance industry the kind of information it has long collected from mortgage lenders under the Home Mortgage Disclosure Act (HMDA). For more than three decades the Feds have collected information on the number and types of home loans most mortgage lenders have made in the nation’s metropolitan areas, along with the census tract or neighborhood in which the homes were located. HMDA has been modified so now lenders are required to disclose the race, gender, and income of all applicants, whether their application was approved or denied, and for certain high cost loans, the interest rate on those loans.

HMDA, coupled with the Community Reinvestment Act (CRA), has resulted in more than $6 trillion in new loans to distressed areas, according to the National Community Reinvestment Coalition. But it is not just advocacy groups that have praised HMDA.

Douglas Duncan, senior vice president for research and chief economist with the Mortgage Bankers Association, recently testified that “MBA uses HMDA data to assist its members in analyzing the industry’s performance in serving the nation and identifying new markets and investment opportunities . . . The data fairly present a picture of the industry’s work, offering information to further effective investment and, where appropriate, provide flags for further regulatory review.”

Federal Reserve Board Governor Mark W. Olson reinforced this point when he testified that “the data prompt discussion, investigation, analysis and research that may deepen our understanding of why these patterns occur and allow us to increase fairness and efficiency in the home loan market.”

Similar disclosure requirements would have the same effect on the home insurance market. A limited state disclosure law in Wisconsin contributed to a $14 million settlement of a racial discrimination lawsuit filed against the American Family Mutual Insurance Company twenty years ago. In that agreement American Family agreed to open several new agencies in Milwaukee’s inner city, increase the company’s policy count in those neighborhoods, implement an affirmative action plan to recruit a more diverse work force at all levels, increase the company’s investments in distressed neighborhoods, and other actions to reinvest in Milwaukee.

Shortly after the lawsuit was filed, the U.S. House of Representatives passed a limited disclosure bill for insurers but it never cleared the Senate. Fair housing experts have been calling for a HMDA for the property insurance industry literally for decades. Those proposals have consistently called for insurers to disclose the income and race of all applicants, whether applications were approved or denied, the census tract of the property, the price of the policy, and other similar information that mortgage lenders have been disclosing for years.

In 1978, I testified before the National Association of Insurance Commissioners (NAIC), the organization of state insurance commissioners who are the nation’s top insurance industry law enforcement officers, calling for HMDA-like disclosure. I was told that the problem with such an initiative would be that incomplete disclosure would lead to misleading conclusions. So apparently there were two options according to these commissioners, no disclosure and incomplete disclosure. In 2008, I made the same proposal to the NAIC, noting that I realized this was not the first time this idea had come before them. I was asked the response when I first testified, which I recounted. Then I asked, “Can anyone think of an alternative to no disclosure or incomplete disclosure?” Everyone laughed. But no action followed.

All parties to these debates concede the need for greater transparency. The Great Recession has been an unprecedented experience in our lifetime and the Dodd-Frank bill offers an opportunity to stave off such an experience for future generations. A lot will be determined, of course, by the regulations that are written to enforce this complex bill, but HMDA for the insurance industry should be a no-brainer when those regs are written.


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