Throughout U.S. history insurers have routinely discriminated against minorities. Discriminatory treatment included such practices as charging minorities higher rates, offering minorities policies with inferior coverage, not returning calls for information from minority applicants or denying minorities coverage altogether. Homeowners insurance redlining is a form of this discrimination where an insurance agency or agent treats homeowners differently not necessarily because of their minority status, but because of the minority composition of the neighborhood their home is located in.
In 1968, a Presidential panel on insurance documented the impact of redlining in minority communities. (See Meeting the insurance Crisis of our cities. President’s National Advisory Panel on Insurance in Riot-affected areas. (Washington, DC: Government Printing Office, 1968 [hereinafter cited as Hughes Report]. Acting on recommendations in the Hughes Report, President Johnson urged Congress to pass the Fair Housing Act of 1968 which was supposed to outlaw these practices.
Since the passage of the Fair Housing Act, insurers have devised various ways to disguise "redlining." Nationwide had the best disguise of all; they simply had no agents doing business in minority communities. In 1997, Nationwide was fined $10 million for this redlining practice. (See Toledo Fair Hous. Ctr. v. Nationwide Mut. Ins. Co., 94 Ohio Misc. 2d 151). I guess Nationwide is only your side if you live on the right side of town. So what is the new "disguise" being used by insurers to circumvent the Fair Housing Act? Credit Scores.
In the 1990’s, acturaries and underwriters began using credit scores to determine insurance eligibility. On its face, credit scores appear "race neutral" because there is no discussion about "race" anywhere in the report. However, it can be argued that there is a correlation between lower credit scores, poverty, and race. Many members of traditionally redlined areas have poor credit scores; this group includes lower income, the elderly, and minority customers. Earlier this year, Allstate and other insurers settled a class action lawsuit comprised of approximately five million African-Americans and Hispanics. (See DeHoyos v. Allstate Corp., 240 F.R.D. 269 (D. Tex. 2007))
The class complaint alleged violations of the Civil Rights Act and Fair Hosuing Act based on the use of credit scores. By using the credit report, these minorities were forced to pay higher premiums for homeowner and automobile insurance than similarly situated Caucasians. Most policyholders are unaware of how widespread this practice has become. One report from the American Academy of Actuaries indicate that over 90% of all policies have been underwritten with the use of a credit score. (See American Academy of Actuaries, Risk Classification Subcommittee of the Property/Casualty Products, Pricing, and Market Committee, The use of credit histroy for personal lines of insurance: Report to the National Association of Insurance Commissioners (Nov. 2002). More likely than not, your insurance company knows your credit history and is using it to size you up as being a "desirable" or an "undesirable" customer. Given the obvious and well-established negative implications of this practice, I was stunned by the U.S. Supreme Court’s recent decision in Safeco v. Burr, Nos. 06-84 and 06-100 (U.S. Jun. 4, 2007). The court limited the circumstances under which companies must tell customers that their credit ratings are affecting the amount they pay for insurance.
This case has significant ramifications for consumers generally, but specifically and immediately, for those involved in pending class-action lawsuits who say they should have been notified, but weren’t. Case summary and selected briefs (provided by Findlaw) Combined amicus brief of the National Consumer Law Center, National Ass’n for Consumer Advocates, U.S. PIRG, National Ass’n of Consumer Agency Administrators, Center for Responsible Lending, and the Consumer Federation Combined amicus brief of the States of Oregon, Arizona, Arkansas, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Maryland, Minnesota, Missouri, Montana, New York, Ohio, Oklahoma, South Carolina, South Dakota, Tennessee, Utah, Vermont, West Virginia, Wisconsin and Wyoming