The Color of Property and Auto Insurance : Time for Change

Insurance company executives issued statements condemning racism and urging change throughout society and in the insurance industry after the huge Black Lives Matter demonstrations in summer 2020. This time period presents a crucial opportunity both for examining insurance as it relates to race and racism, including history and current regulation, and for actual, overdue changes in insurance in the U.S. Two of the most important types of personal insurance are property and automobile. Part I begins with history, focusing on property insurance, auto insurance, race, and racism in urban areas around the mid-twentieth century. Private insurers deemed large areas of cities where African Americans lived to be “blighted” and refused to insure all homes in these areas, despite lacking clear evidence of increased risk. This created a property insurance crisis in the cities. Affordable automobile insurance in areas such as Harlem was hard to come by; complaints of race discrimination went back to the 1930s.The federal government got involved in the late 1960s after state and local remedies were insufficient. The federal Urban Property Protection and Reinsurance Act of 1968 (UPPRA) was aimed to incentivize private insurance companies to enter the urban market and to support states in establishing plans (known as Fair Access to Insurance Requirements or FAIR Plans) that would require companies to cover a certain amount of risk in urban areas. The UPPRA and FAIR plans led to a robust urban property insurance market at minimal cost to the government and industry, Part II finds. The federal program later was discontinued and largely forgotten, probably due to its success. This forgotten history tells us that insurance markets have not functioned in a neutral way and that for long periods companies did not sell property insurance based on objective neutral data but based on at least in part on racial prejudice. It further shows that the federal government can play a socially positive rule in insurance markets without miring the government in taking on the entire risk or costing taxpayers huge sums. Yet the reform measures did not end redlining or challenge many of the equity issues involved in insurance. Property and auto insurance companies have shifted in recent decades from explicit race-based exclusions to the use of facially neutral practices for pricing and underwriting such as algorithms, machine learning, and credit scores. However, insurance antidiscrimination law (which is largely state law) has not kept pace. No federal law directly bans race discrimination in auto insurance, and federal housing antidiscrimination law has not been consistently applied to housing insurance practices which have a disproportionate impact on racial minorities. Three reforms would improve current practices, Part III asserts. First, insurance regulation should require more disclosure with requirements parallel to those of the Home Mortgage Disclosure Act. Insurers should be required to collect and disclose specific data on insurance applications and declinations, membership in protected groups, and other information. Second, a private cause of action should potentially be made available for insurance discrimination when insurance practices lead to a disparate impact on African Americans and other racial minorities. Third, insurance regulation should be shifted away from rate regulation which currently serves no useful purpose; this would make more room and time for the other proposed reforms which might lead to long overdue changes in property and auto insurance regulation and practices