In 1986 a district manager for the American Family Insurance Company in Milwaukee told one of his agents to “quit writing all those blacks. . . . Very honestly, I think you write too many blacks. . . . We cannot afford them. . . . You got to sell good, solid, premium paying white people.”
As a result of a lawsuit by the NAACP, several community groups in Milwaukee, and the U.S. Department of Justice, in 1995 the company agreed to a settlement in which it committed to writing more policies in the city’s traditionally redlined Black community, open offices and market its products in that community, change underwriting guidelines that had a discriminatory effect on non-whites, hire a more diverse workforce, and more. The National Fair Housing Alliance followed up by conducting paired testing of several insurers, documenting their discriminatory practices, and reaching similar agreements with Allstate, State Farm, Nationwide, and Travelers.
These more explicit practices are far less frequent today, primarily thanks to settlements that were reached in the ’90s and early 2000s. But recently the industry has decided to cut back on home insurance policies, significantly raise premiums, and threaten to leave certain states altogether because of the losses it is experiencing due to climate change and so-called natural disasters.
This behavior has led to significant, and inequitably distributed, hardship for homeowners (and affordable housing developers). One industry group, the Insurance Information Institute, estimated that in 2022, 12 percent of homeowners had no insurance compared to just 5 percent who went without coverage in 2019. On June 10 of this year, The Wall Street Journal reported (on page A16) that homeowners insurance premiums had increased 37.8 percent since 2019 and 5.8 percent in just the first three months of this year.
The Consumer Federation of American (CFA) reported that the increase in uninsured homeowners was particularly sharp in low-income and minority neighborhoods. CFA estimated that 7.4 percent of all homeowners were uninsured in 2021 but families with incomes below $50,000 were twice as likely to go uninsured as the general population. Among Black homeowners in that 2021 data, the uninsured rate was 11 percent, for Hispanics it was 14 percent, and for Native Americans it was 22 percent.
The growing unavailability and unaffordability of home insurance is attributed by the industry to losses resulting from the increasing frequency of events like hurricanes and fires and the climate change that intensifies them. But this is chutzpah, for a couple of reasons.
First, in many years insurers lose money on their underwriting activities but more than compensate with their investment income. Last year, for example, the property/casualty industry experienced $21.6 billion in underwriting losses but earned $73.9 billion in investment income. When companies receive payments for insurance policy premiums, those funds are invested, typically long before payments for losses are made.
Second, the industry is an active investor in activities causing “natural” disasters and climate change. According to a June 10 report in New York Focus, about a tenth of the industry’s total assets—$500 billion—is invested in fossil fuels. So the industry is not just a passive victim in the increased underwriting losses it claims it is experiencing.
Some state regulators are starting to respond with proposals that insurers change their investments in order to get the rate relief they claim they need. New York, for example, is considering legislation that would require insurers to disclose their fossil fuel investments and begin phasing them out. Connecticut is considering a fee on companies that insure fossil fuel producers. California is considering a plan to require insurers to sell more policies in fire-prone areas as a trade-off for allowing insurers to increase their rates. It remains to be seen what will come to fruition.
Disclosure Needed
Fuller disclosure of industry underwriting and investment practices is a critical next step. To confirm that insurance redlining is returning, and to know its full extent, we need a clearer picture of who is being refused coverage.
For decades consumer groups, academic researchers, and others have been calling for geographic disclosure of insurance applications and the dispositions of those applications, similar to what mortgage lenders are required to submit under the 1975 Home Mortgage Disclosure Act (HMDA).
HMDA has transformed mortgage lending in the U.S. John Taylor, founder and longtime head of the National Community Reinvestment Coalition (NCRC) representing over 300 consumer and other nonprofit community groups, frequently asserted that “data drive the movement.” He was speaking primarily about HMDA. It was Home Mortgage Disclosure Act data (coupled with the federal Community Reinvestment Act prohibiting redlining by federally chartered financial institutions) that provided the basis for the more than $630 billion in community benefits agreements NCRC has negotiated with several lenders across the country.
But it is not just activists who praise HMDA. In the mid 2000s, when he served as senior vice president for research and chief economist for the Mortgage Bankers Association (MBA), Douglas Duncan observed: “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.”
Mark W. Olson, former governor of the Federal Reserve Board, reinforced this message 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 could provide similar benefits for the insurance industry, its customers, and their communities.
One positive development in this direction has been a call by the National Association of Insurance Commissioners (NAIC), a trade association of state insurance commissioners who are the primary regulators of the insurance industry, for major insurers to provide ZIP code counts of 70 variables related to their provision of insurance in the U.S. The association has called on each state insurance commissioner to request data from the approximately 400 insurers who make up 80 percent of the private homeowners insurance market. The data was to be submitted to the NAIC by June of this year, but as of this writing it is unclear how many states have participated and how many companies have submitted data.
The NAIC data call is an important starting point. But even if the data comes in, it will have serious limitations. While HMDA provides disclosure at the individual level, includes the census tract of properties, identifies the names of the lenders, indicates whether applications were approved or denied, and is available to the public, the insurance data call is for aggregate ZIP code data, application denials are not included, and the data is not available to the public. A group of 20 community organizations pointed out these and several other limitations and 21 members of Congress asked the NAIC how it planned to respond. In its response the NAIC wrote, in part:
“At this time, we can say we do not envision releasing company names associated with a particular set of data—while that data is important for regulators to have to address issues with a particular regulated entity, we do not believe it is appropriate for broader public use. Beyond that, use of the data publicly is still being worked through by commissioners.”
This reflects a continuing and longstanding resistance on the part of the industry and its regulators to disclosure and full transparency. In 1978 I called for HMDA-like disclosure in testimony before the NAIC. The basic response I got was that partial disclosure leads to inaccurate conclusions. Ten years later I was back at the NAIC making a similar proposal and I related the response of 10 years earlier. I said that, apparently at that time, there were two options; no disclosure and incomplete disclosure. I asked if anyone could think of a third option. Everyone in the room laughed. But still nothing was done.
With this year’s data call, it is good to see the industry emerging from the Stone Age. It would be nice to see it enter the 21st century. Once again, it is evident that further progress will have to start with, and depend on, consumer advocacy.
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