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COMMUNITY REINVESTMENT ACT

THE ISSUE IS. Consumer lobbyists, community organizers, certain members of Congress and state legislatures have raised the issue of applying the CRA to the insurance industry. Congress passed the CRA in 1977 to encourage banks and thrifts to lend in certain communities - particularly low-income, minority neighborhoods - in which they accept deposits.

IT'S IMPORTANT BECAUSE. Insurance companies, which are not depository institutions, have not been subject to CRA requirements. Proponents of applying CRA to insurance companies believe that consolidation is erasing the boundaries between financial services companies, such that CRA should apply to all financial services companies. However, important differences remain between banks and insurance companies.

First, insurance companies are chartered to provide insurance, not credit. Insurance companies would violate their fiduciary duty to policyholders as well as safety and soundness requirements of state insurance investment laws if they were to extend credit in the manner and to the degree contemplated by the CRA. In addition, banks enjoy federal benefits not available to insurance companies. The federal government insures bank deposits and grants other financial advantages to depository institutions, providing a quid pro quo for banks' social obligations under CRA. Insurance companies do not enjoy the same federal benefits. Finally, insurance companies do not unfairly discriminate. It is unnecessary to extend CRA to insurance companies because the industry does not unfairly discriminate against low-income and minority communities - the assertion made against the banking industry that led to the creation of CRA. To the contrary, insurance companies participate in many voluntary programs in disadvantaged and minority areas and are seeking to expand their business in urban areas. In addition, existing laws prohibit unfair discrimination, insurance regulators enforce anti-discrimination laws and residual markets exist to cover high-risk properties. Further, most insurance companies do not have a geographic community. The Community Reinvestment Act is by definition oriented to a specific geographic "community." Many insurers have no similar geographic orientation.

The idea of extending CRA to insurance companies is not only fundamentally flawed, it is impractical from a policy standpoint. Subjecting the industry to an unnecessary government mandate would: 1) raise policyholders' premiums, 2) financially weaken the insurance industry, 3) undermine competition in the industry, and 4) jeopardize the ability of companies to pay customers' claims, especially in a catastrophic situation.

NAMIC POSITION. Problems do exist in our nation's urban communities. Many of these problems are the result of ineffective or misguided government policy. Imposing lending and social investment obligations on other financial services companies, especially insurance companies that are not in the lending or social program business, will not solve the problems. It will only create new ones. Moreover, attempts to legislate community involvement on an industry already making a considerable investment would serve precious few while harming many.

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Benjamin Franklin Public Policy Award

Every two years, NAMIC presents their coveted Benjamin Franklin Public Policy Award© to lawmakers who have supported a stronger insurance market at least 75 percent of the time. This is demonstrated based on their support of NAMIC's position on certain roll call votes taken, or being a principal player/sponsor on legislation affected the property/casualty insurance industry, during the previous Congress.