NAMIC: Proposed HUD Rule Would Jeopardize Risk-Based Insurance Underwriting
WASHINGTON (January 18, 2012) Home insurers would be forced to jettison risk-based underwriting factors under a proposed rule by the Department of Housing and Urban Development, the National Association of Mutual insurance Companies (NAMIC) said today.
In response to a comment request from HUD, NAMIC expressed strong opposition to the proposed rule to “prohibit housing practices with a discriminatory effect, even where there has been no intent to discriminate.” If adopted, the rule would effectively force insurers to abandon the use of risk-based underwriting factors if they have a “disparate impact” on particular racial and ethnic groups. The disparate impact, or discriminatory effects, theory of discrimination holds that a business practice is unfairly discriminatory if the percentage a group’s members that is adversely affected by the practice is higher than the percentage of another group’s members that is adversely affected – notwithstanding that all individuals were treated equally without regard to racial group membership, and despite the fact that there was no intent to discriminate.
The Fair Housing Act, which HUD cites as the authority for its proposed rule, makes it unlawful to “refuse to sell or rent” or “otherwise make unavailable or deny” housing to a person “because of” a protected characteristic, including race. “HUD claims that its proposed ‘discriminatory effects’ rule is based on the Fair Housing Act,” said Dr. Robert Detlefsen, NAMIC’s vice president of public policy. “But a plain reading of the Act makes clear that its purpose is solely to prohibit discriminatory treatment of individuals because of their race. It says nothing about non-discriminatory practices whose outcomes or effects vary statistically among groups.”
Detlefsen added that compliance with the proposed rule would cause insurers to run afoul of state insurance laws, which require insurers to classify insureds solely on the basis of risk. To avoid the possibility that its underwriting process would produce a disparate impact, an insurer would have to subordinate considerations of risk to considerations of race.
“If a state regulator has found that a rate, rating factor, or territory does not unfairly discriminate, HUD’s intervention via a finding of disparate impact or ‘discriminatory effect’ could reverse the state regulator ruling and even make the resulting application unfairly discriminatory under state law,” Detlefsen said. “As such, the proposed rule would serve to undercut and even contradict the unfair discrimination standard in state law.”
NAMIC’s comment letter also noted that from a procedural standpoint, HUD’s proposed rule is premature given that the Supreme Court is set to hear arguments on a related issue next month. “In light of the direct bearing the decision of the court will have on the issues at hand, we respectfully requested that HUD defer action on the proposed rule until the Supreme Court renders its decision in the case of Magner v. Gallagher,” Detlefsen said.
Contact: Matt Brady
Director of Media Relations