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Should the Community Reinvestment Act Apply to Insurance Companies?

I. The Purpose of this Paper

The National Association of Mutual Insurance Companies (NAMIC) is a national trade organization representing more than 1,200 member companies that make up over 34 percent of all property/casualty insurance premiums in the United States. NAMIC benefits member companies through government relations, public affairs, education and arbitration services, and insurance and employee benefit programs. Information about the association, its member companies and the property/casualty insurance industry can be found at NAMIC Online.

NAMIC believes that public policy does not exist in a vacuum nor should it be created in one. During public policy's formulation, consideration ought to be given to the social, political and economic environment in which that policy will operate. Good public policy - or public policy that is in the public good - must consider these environmental factors.

The debate over the Community Reinvestment Act's (CRA) application to financial services sectors beyond banking - particularly in the context of federal financial modernization legislation - has often been conducted without regard to the broad public policy issues involved and to the differences between banks and other institutions in the financial services industry. This paper will examine the issue of imposing social investment obligations on the property/casualty insurance industry in the context of good public policy. It will conclude with recommendations that represent this association's view, and, we believe, good public policy for all Americans.

The paper focuses primarily on property/casualty insurance companies, since they comprise the membership of NAMIC. Life insurance companies are discussed to a lesser extent as they are part of the debate on legislating social investment obligations. A third segment - health insurance companies - is not generally included in the debate and therefore not included in the paper.

  • The history, purpose and function of CRA are often misunderstood. Therefore, Section III begins with a summary of CRA as it applies to the banking industry.
  • Since understanding how insurance works and how insurance is regulated is necessary to properly assess the industry's role with respect to social investment obligations, Section IV is an introduction to insurance.
  • Since good public policy must consider the social, political and economic environment in which we operate, Section V examines these factors as they influence CRA policy.
  • The theory of expanding CRA to insurance companies includes several assumptions that must be examined in the context of the purpose and regulation of the insurance industry versus the purpose and regulation of the banking industry. Section VI addresses these differences.
  • Insurance companies already invest heavily in urban and minority communities throughout our nation. Section VII provides a glimpse of the myriad of programs supported by insurance companies and agents.
  • Finally, the paper outlines conclusions reached by NAMIC's public policy process. These conclusions build on the information and analysis outlined in the paper.