Bill introduced requiring insurance companies to invest $400 million to create jobs and housing.

SACRAMENTO, Calif.--(BUSINESS WIRE)--Feb. 24, 1995--Assembly Member Barbara Lee (D-Oakland) today introduced a bill to require insurance companies doing business in the state to invest at least $400 million annually in urban and rural California communities.

One of the first of its kind in the nation, the bill calls for a percentage of premium dollars collected from state policyholders to be invested in small businesses, farms and affordable housing in California. The bill, co-authored by Assembly Member Marguerite Archie-Hudson (D-Los Angeles), is supported by broad coalition of housing, economic development and consumer groups.

"We want insurers to invest in our communities, not just Wall Street," Lee stated. "Insurers collect over $60 billion in premiums annually from California residents and some of those dollars need to stay here to help revitalize our neighborhoods," Lee added. "Many profitable opportunities are crying out for investment capital."

The precedent for the bill stems from the federal Community Reinvestment Act (CRA), which requires banks to serve the credit needs of their entire service areas, including low-income areas. Due to the CRA, five major California banks alone have committed $1.5 billion in the past six years for small business and affordable housing loans in low and moderate income areas throughout the state, according to the California Reinvestment Committee, a coalition of community groups that negotiates CRA agreements with banks.

"We think this bill is a win-win situation for everyone -- insurance companies and all residents of California," said Earl Lui of Consumers Union, one of the bill's sponsors. "The banks have shown that profits can be made serving community needs. Insurance companies also will profit directly from these investments in the short-term and from the economic revitalization created by their investments in the long-term."

Insurance companies that collect $15 million or more in annual premiums from California residents would be affected by the bill -- a total of 198 life insurance companies and 250 property and casualty companies, based on 1993 data. Life insurance companies would have to invest at least 1 percent of California premiums; property and casualty companies would have to invest at least 1/2 of 1 percent of California premiums in "economically targeted investments."

"These investments are safe, profitable investments that will create jobs, build affordable housing and help small farms," declared Mike Herald of Housing California, a coalition of housing and economic development groups.

Under the bill's formulas, Prudential, the largest life insurance company in the state, which collects approximately $2 billion in premiums, would be required to invest about $20 million annually; State Farm, the largest property and casualty company, which collects $2.5 billion in premiums, would need to invest about $12.5 million, based on 1993 data.

"What's ironic about this bill is that it will generate jobs and other economic benefits to areas of the state which often have the hardest time getting affordable insurance policies," observed Marguerite Judson of Consumer Action, a supporter of the bill. "By investing in communities, insurers will help create a better climate for writing insurance."

Examples of "economically targeted investments" include debt or equity investments for affordable housing or small business development; investments in community development banks and credit unions; investments in state or local community development bonds; and purchases of affordable housing or economic development loans on the secondary market.

Such investments could be made directly by the insurance company, or through financial intermediaries, such as investment banks, consortia or loan pools. Numerous such intermediaries, both for-profit and non-profit, have sprung up in recent years to help channel investment dollars into communities that need it.

Under the bill, insurers must report annually on the type and dollar amount of "economically targeted investments" to the Department of Insurance. Failure to comply with the legislation would subject insurance companies to civil penalties assessed by the Insurance Commissioner. In extreme cases of noncompliance, the Commissioner may revoke an insurer's certificate of authority to do business in California. "These enforcement tools are necessary to ensure the industry takes its responsibility seriously," added Lee.

The bill is supported by the California Community Economic Development Association, California Association for Microenterprise Opportunity, California Reinvestment Committee, Consumer Action, Consumer Union, Housing California and the Proposition 103 Enforcement Project.

CONTACT: Office of Assembly Member Barbara Lee, Sacramento

Darnell Cooley, 916/445-7442

Housing California, Sacramento

Mike Herald, 916/447-0503

Consumers Union

Earl Lui, 415/431-6747