The Anti-Redlining Agenda: An Assault on Risk-based Insurance
The House of Representatives is considering two competing bills aimed at addressing recent charges of insurance industry redlining (the refusal to sell insurance in certain communities). The primary sponsors of the two pieces of legislation, Rep. Cardiss Collins (D-IL) and Rep. Joseph Kennedy (D-MA), have both fashioned data collection programs. Rep. Kennedy’s Insurance Consumer Protection Act, compared to Rep. Collins’ Anti-Redlining in Insurance Disclosure Act (HR 1188), is a much more ambitious and costly effort, in terms of the number of cities sampled, the questions asked, and the time period involved.
Unfortunately, the millions of dollars that policyholders and taxpayers would lay out under either proposal would not buy much. The fundamental facts surrounding urban insurance markets are less in dispute than the interpretation of those facts. Insurance industry spokesmen acknowledge that urban residents often pay higher premiums for auto and homeowners' insurance than suburban because of higher expected claims costs. The Association of Community Organizations for Reform Now and Consumers Union respond that the availability of auto or homeowners' insurance is often key to the further development of poorer neighborhoods. Community groups maintain that higher expected claims costs should not be allowed to price some consumers out of the insurance market.
The consumer groups that support the pending legislation are clearly interested in more than just a data collection program. Their long-term agenda includes regulatory changes that would:
- restrict the ability of insurers to use territorial rating; and
- establish minimum acceptable policy terms.
Some community activists have also urged regulators to base allowable rates of return for insurers on their sales to targeted neighborhoods. Others would establish community reinvestment guidelines that would force insurance companies to invest in neighborhoods from which they gather premiums.
In the long run, such regulatory initiatives would be counterproductive, reducing both the availability and the affordability of insurance. Insurance consumers in all markets would be better served by policies designed to encourage entry and increase competition in the insurance industry.