Regulations from the Department of Housing and Urban Development that could target any underwriting factor used for homeowners insurance that creates a disparate impact on a protected class, regardless of intent, could undermine the underwriting process and trigger a wave of frivolous litigation, ultimately costing consumers, according to the National Association of Mutual Insurance Companies.
“Under this rule, virtually any metric used for underwriting could be subject to litigation, even if no actual discrimination exists,” said Jimi Grande, Senior Vice President of Federal and Political Affairs for NAMIC. “As such, it becomes very costly, and perhaps impossible, for insurers to differentiate the potential for loss among different applicants for coverage.”
The HUD rule would apply a standard to make any practice that results in a disparate impact for a protected class, for example race, color, religion, sex, familial status, or national origin, a violation of the Fair Housing Act. The rule ignores the question of intent, meaning that any disparate impact could be treated as discriminatory and subject to penalties or litigation, regardless of how it came about. Risk differentiation is essential to the business of insurance, Grande argued, and the pricing of insurance products that unintentionally produce statistical disparities among groups bear no resemblance to discrimination “because of” race, color, religion, sex, or disability.
“NAMIC and its member companies do not condone unfair discrimination in any aspect of our business, and we support all of the regulatory provisions that appropriately define and enforce this critically important goal,” Grande said. “The disparate impact standard was created to prevent discrimination based on race, color, religion, sex, familial status, or national origin. However, the rule HUD intends to enact fails to even consider whether the effect is actually discriminatory, or simply the result of numerous other factors.”
Several members of Congress have questioned the proposed rule as excessive, and a group of state lawmakers have opposed it as an encroachment on the states’ right to regulate property/casualty insurance. However, according to a regulatory agenda released by the Office of Management and Budget, HUD intends to formally enact the rule next month.
“This rule would allow a federal agency with no authority to regulate insurance to overstep the rightful jurisdiction of the states, trigger waves of litigation and ultimately raise costs for consumers, without actually increasing protections for homeowners,” Grande said. “NAMIC will continue working to prevent it from being finalized in its current form, and will take other steps as needed in the event it is imposed by HUD.”
Contact: Matt Brady
Public Affairs Director - Federal Affairs
Posted: Thursday, January 10, 2013 1:02:32 PM. Modified: Thursday, January 10, 2013 1:17:22 PM.
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