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Should the Community Reinvestment Act Apply to Insurance Companies?

V. The Social, Political and Economic Environment of the CRA Issue

This section will provide an overview of the social, political and economic environment as it relates to proposed investment obligations being imposed on the property/casualty insurance industry.

During the last four decades, urban problems have been among the nation's most difficult policy issues. A timeline tracing various policy proposals might include:

  • 1960s - The Great Society programs.
  • 1970s - The Community Reinvestment Act and Home Mortgage Disclosure Act.
  • 1980s - Enterprise Zones and HUD's HOPE program (Homeownership Opportunities for People Everywhere).
  • 1990s - Community development banks and welfare reform.

With each program, policymakers have struggled to find solutions to problems related to poverty, discrimination, joblessness and the breakdown of the family. Some programs have worked better than others, but there is no universal remedy and there are no quick fixes.

As already discussed, CRA has applied to the banking industry for 22 years. The following section evaluates the environment in which the current debate over CRA and insurance takes place.

The Social Environment

The notion of CRA is intertwined with issues of unfair discrimination and money. As noted earlier, the law was a targeted response to specific issues related to access to credit in neglected urban areas in the 1960s and 1970s.

Property/casualty insurance exists to meet an important socioeconomic need. It provides protection against risks that no single individual or business can bear. Property insurance is universally available to qualified applicants. It is usually obtained through insurance companies, which have made great strides to tap into the growth market of urban areas in recent years. However, it may also be obtained through state FAIR plans for the declining number of applicants who do not qualify for the private market.

As with any highly regulated industry, the property/casualty insurance industry has faced challenges from activist groups using the legal system to examine its business practices. In recent years, some insurance companies have entered into settlement agreements designed to enhance the marketing of insurance in urban areas. In general, these agreements are designed to promote the availability of property insurance in urban markets.

Unlike the situation with banks in the 1960s and 1970s, there are no data showing that the insurance industry practices unfair discrimination. This was recently demonstrated in a HUD-funded Urban Institute study of urban property insurance markets. 6 In examining two markets, the Urban Institute's testing and subsequent analysis found that no unfair discrimination existed in the provision of property insurance. Furthermore, officials at the U.S. Department of Housing and Urban Development have acknowledged (1996) that they have no record of individuals being denied homeownership as a result of not having access to homeowners insurance.

A 1996 study by the Insurance Research Council found that the perception of unfair discrimination by property/casualty insurance companies is often caused by a general mistrust of large institutions, as well as a lack of public understanding of the business of insurance. 8 The study, Fairness and Balance in Residential Property Insurance: A National Survey of Homeowners' Attitudes, found that more than 9 out of 10 white and minority homeowners report having insurance coverage on their residences. Regardless of race, respondents in the study did not report that access to insurance coverage is restricted or denied to them. The reason most often cited on why people do not have insurance is that they simply do not feel they need it, do not want it, or just have not bothered to obtain coverage.

To address the perception of discrimination, the industry has supported programs to educate consumers about the value of property insurance. Two programs, in particular, deserve mention:

  • The Urban Insurance Partners Foundation was founded by the insurance industry in 1996 to maximize the availability of property insurance in urban areas. It does this by partnering with companies and community based organizations to teach the basics of homeowners insurance to low-and moderate-income prospective homeowners. It also contributes money, goods, and services to make particular neighborhoods better insurance risks by, among other things, distributing smoke detectors, installing security lights and rehabilitating housing using insurance company volunteers.
  • The National Insurance Task Force was formed by several large insurance companies and the congressionally chartered Neighborhood Reinvestment Corporation in 1994. Its mission is to develop partnerships between the insurance industry and community-based organizations to better market the products and services of both, for the benefit of customers and communities they serve.

The insurance industry has founded other organizations to address issues related to the public good. Organizations founded by the property/casualty insurance industry include:

  • Underwriters Laboratory, to make electrical appliances safer;
  • The Institute for Business & Home Safety, to reduce deaths, injuries, property damage, economic losses and human suffering caused by natural disasters; and
  • The Insurance Institute for Highway Safety, which has saved countless lives through its research on automobile safety.

Insurers also sponsor and coordinate safety and educational programs benefiting school children and adults across the nation on a wide variety of topics.

Insurance companies and their employees donate hundreds of millions of dollars each year to not-for-profit charitable community organizations such as the YMCA and the United Way. Insurance company employees understand the value of giving back by donating their time, energy and finances to these and other worthwhile charities.

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