Activists Charge Insurers With `Redlining' Poor Areas

BANKS have been intensely scrutinized by regulators, civil rights groups, and community organizations concerned about redlining - the denial of mortgages and other services to people in areas considered deteriorating or risky. Typically, those people are nonwhite, low-income, and urban dwellers.

Now the same charges are being made against insurance companies. Hearings have been held in Congress on the subject. One nationwide group, the Association of Community Organizations for Reform Now (ACORN), recently released studies purporting to show discriminatory practices by insurance companies in 14 cities in the United States.

Those who make the charges say the evidence shows a calculated effort by companies to avoid doing business in urban neighborhoods, a tactic outlawed in most states. Industry spokespeople spurn the "evidence" as flawed and say their decisions on whom to insure are based on legitimate business practices.

ACORN staff members in various cities randomly surveyed agents to see if they could get price quotes over the phone on homeowner's insurance for properties in various neighborhoods and towns. They claim to have found consistent reluctance to deal with people from poorer areas: Callers inquiring about insurance for homes in those communities were refused a quote 38 percent of the time, while those from wealthier towns were turned down 7 percent of the time, according to ACORN.

Willy Walton participated in an ACORN phone survey of agents in the Boston area, which was done separately from the 14-city national study. He says that calls about coverage in low-income neighborhoods, like the Dorchester section of Boston, met with a barrage of questions about ZIP codes, de-leading certificates, and the state of the dwelling's wiring. Most agents said they would have to see the house, Mr. Walton said. By contrast, callers asking about homes in the affluent suburb of Lexington usually w ere given a quote, with few questions asked.

Such surveys say little about access to homeowner's insurance, says Marc Rosenberg, vice president of the Insurance Information Institute, which represents the industry in Washington. There's no correlation between the inability to get a price quote on the phone and the ability to actually buy insurance, he says, adding that other data have shown that roughly 93 percent of all US homeowners have coverage. Further, Mr. Rosenberg says, many agents are told not to give quotes on the phone.

Then why did so many callers claiming to be from wealthier areas get quotes, asks Gregory Squires, a sociology professor from the University of Wisconsin. He has followed the redlining issue for more than a decade. Professor Squires says these latest findings are "entirely consistent with most research done before," he says. "The fact that people aren't going without insurance doesn't mean that redlining is not a problem." Squires argues that many inner-city dwellers are forced to buy inferior policies a t high prices.

Allegations of blatant redlining tactics were made during February hearings in Washington before the House subcommittee on consumer credit and insurance. California Insurance Commissioner John Garamendi held up a map showing nearly a third of San Francisco redlined. The map was supplied to him by an insurance agent, Mr. Garamendi said.

Rosenberg says he has doubts about the map's authenticity. "That kind of geographic discriminiation is illegal," he says. "I don't know of anyone in the industry who would defend it."

The American Family Mutual Insurance Company is the target of a class-action lawsuit in Milwaukee, alleging the firm's sales practices are designed to avoid doing business in that city's black neighborhoods. The company moved to have the case dismissed because the federal fair-housing law cited by the plaintiffs didn't apply in the state-regulated insurance field - and won in a lower court. But the decision was reversed by a federal court of appeals.

Gretchen Miller, an attorney involved in the suit, says the Milwaukee litigation could break new ground by making federal remedies available in insurance redlining cases, as they already are in cases related to banks' lending practices.

Tom Shriner, an attorney for American Family, rejects the charge of discrimination on the basis of race. "There's an awful lot of lawful discrimination in the business," Mr. Shriner says. "State insurance laws require it. You may not treat unlike risks the same."

Homeowner's insurance isn't the sole focus of legal action. In a suit originating in Detroit, the American Automobile Association is charged with discriminatory practices in writing car insurance. The aim of the suit, says Melvin Hollowell, a Detroit lawyer who spearheads the effort, is to force insurance companies to drop reliance on "territories" - which, in his view, cordon off low-income, minority car owners - and make decisions on individual driving records.

From the industry's perspective, that reasoning underplays the frequency of theft, vandalism, and accidents in urban areas.