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FEDERAL REGULATION OF PROPERTY INSURANCE UNDER THE FAIR HOUSING ACT

(Current as of February 2003)

THE ISSUE IS: Whether the U. S. Department of Housing and Urban Development (HUD) has the authority to regulate the property insurance industry under the Fair Housing Act (FHA).

IT'S IMPORTANT BECAUSE: HUD has attempted to act as a federal regulator of property insurance, without having the congressional authority to do so.

Congress gave states the regulatory authority over insurers more than 55 years ago through passage of the McCarran-Ferguson Act. The act specifically grants states primary and preemptive responsibility for regulation of insurance. The act reads, "No act of Congress shall be construed to invalidate, impair or supersede any law enacted by any state for the purpose of regulating the business of insurance.unless such act specifically relates to the business of insurance."

The intent of Congress is clear. Not only did Congress choose not to include such language when the FHA was enacted, several attempts to amend the act to make it apply to property insurance failed. Congress rejected such amendments in 1980,1983,1986, and 1988.

HUD started to develop proposed property insurance regulations after consumer activists charged insurers routinely "redline," or discriminate against minority, inner-city residents in the sale of property insurance. Scientifically based studies demonstrate these charges are unsubstantiated. The A.M. Best Company concluded that allegations of insurance company redlining are unfounded. In addition a survey by R.L. Associates, a private research firm, found that the vast majority of low to moderate-income homeowners have property insurance. Most recently, the Urban Institute, in a study conducted at the request of HUD, determined no ". systematic discrimination in the provision of home insurance.".

HUD's lack of authority has not stopped the agency from pursuing its own agenda, under the auspices of the federal Fair Housing Act (FHA). HUD has maintained it has the right to regulate property insurers since homeowners need insurance to obtain mortgages. This is despite the fact that the FHA makes no mention of property insurance. The act governs home sales and rentals and the service provided by home sellers, landlords, mortgage lenders and real estate brokers. This mandate is lost on HUD as it seeks to expand its enforcement powers by ignoring boundaries set by law.

The agency has also exceeded its authority by awarding grants totaling several million taxpayer dollars to activist groups as part of an initiative to enforce the FHA. Fair Housing Centers and other similar organizations across the country have received the money to conduct investigations into alleged insurance discrimination that may lead to complaints with HUD under the FHA. The grants were given under the Fair Housing Initiatives Program (FHIP), Private Enforcement Initiative Special Project.

State insurance departments already handle consumer insurance complaints. HUD's efforts are unnecessary duplications, wasting taxpayer dollars.

NAMIC is working with the insurance industry and Congress to address perceived urban insurance problems. Also, the association helped form and fund the Urban Insurance Partners Institute in 1996 to maximize property insurance availability and affordability in America's urban communities. The foundation brings together community organizations and insurance companies for education and community development.

In addition, NAMIC is actively involved with Neighborhood Housing Services (NHS) organizations across the country. The association believes such insurance industry partnerships are an effective way to address the issue of insurance availability in urban areas. NAMIC is also a member of the Neighborhood Reinvestment Corporation's National Insurance Task Force, which includes participants from consumer groups, the state insurance regulatory arena, insurance companies and other trade associations. The task force is dedicated to facilitating partnerships between insurers and community groups to address the urban property insurance issue.

NAMIC POSITION: NAMIC opposes unfair discrimination of any kind in the issuance of insurance policies. Redlining is illegal in all 50 states and the District of Columbia. Property insurance is available in urban areas through the private marketplace and Fair Access to Insurance Requirements (FAIR) plans. Regarding urban areas specifically, NAMIC agrees with the insurance principle that higher risks necessarily involve higher rates for consumers. To do otherwise would involve lower-risk policyholders subsidizing higher-risk policyholders. The association is convinced regulation and oversight of the industry should remain with the states and not be shifted to the federal level, particularly at the whim of a federal agency.

NAMIC believes that HUD lacks the jurisdiction to regulate the insurance industry. The McCarran-Ferguson Act, properly interpreted, precludes federal jurisdiction in this area under the Fair Housing Act. Further, any congressional action to change the current position is unwarranted in view of the state laws prohibiting redlining.

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