Let the home buyer beware: insurance carriers come under fire for racial redlining and price disparities.

Insurance carriers come under fire for racial redlining and price disparities

If you think Nationwide is really on your side, perhaps you ought to think again. That's the advice of Jennifer and Steve Beavers, a young couple living in Dayton, Ohio, who were shocked when the insurance company suddenly canceled their $173,000 homeowners' policy in 1990. When they pressed for an explanation, their agent timidly confided, "It's possible the underwriter feels intimidated by the neighborhood."

"It was appalling and I was astonished. To think that in the '90s you could be dropped for this reason was shocking to me," says Jennifer, who with her husband went on to get a less expensive policy with a different insurance carrier. But their dealings with Nationwide were far from over. The Beavers pressed ahead and filed a discrimination and redlining complaint against Nationwide through Dayton's Human Relations Council, which has a federal contract to investigate alleged Fair Housing Act violations. But rather than address the complaint, Nationwide took the case all the way to the U.S. Supreme Court, arguing whether the council had jurisdiction in such a case. The Beavers' case, as well as those brought by several other African American homeowners against Nationwide, is still pending.

Increasing incidents of discrimination and racial redlining against African American homeowners by insurance carriers across the country prompted the Washington, D.C.based National Fair Housing Alliance (NFHA) to file an administrative complaint against Nationwide and other insurance carriers with HUD in 1994. The group had serious concerns as to whether African Americans were really "in good hands with Allstate," and if State Farm was truly "like a good neighbor" to policyholders who weren't white and living in certain areas. All three groups were cited in the administrative complaint.

NFHA's concerns were based on testing that concluded whites received better coverage and lower rates than homeowners in black, Latino or integrated neighborhoods. Further testing by the NFHA uncovered numerous examples of different coverage rates being offered to black and white homeowners despite the similarities of the homes they owned and coverage they were seeking. Shanna Smith of the NFHA recalls one example in Akron, Ohio, of a black homeowner with a $45,000 home and a white homeowner with a $50,000 home. Both parties were seeking similar insurance coverages, but the black homeowner was hit with a $222 premium versus the white homeowner's premium of $133 annually.

The NFHA found similar complaints against State Farm in Toledo, while Allstate and Nationwide didn't make the grade in 10 cities they service across the country. In the national testing project, discrimination against African American and Latino applicants and homeowners in African American and/or Latino neighborhoods occurred 53% of the time. The rates of discrimination were close to 50% for both Allstate and Nationwide (testing was conducted in 10 different cities). Of the tests conducted with State Farm (testing was conducted only in Toledo), the rate of discrimination was 85%. In the cities in which testing was conducted, the rate of discrimination ranged from a low of 32% in Memphis to a high of 83% in Chicago. The discrimination took on many forms, but was typified by practices that restricted or denied homeowners insurance coverage to minority neighborhoods. It ranged from the petty (not returning phone calls) to the more blatant (quoting of higher rates) or simply being told that the office didn't do business in specific neighborhoods, as was the case with the Beavers.

Smith, NFHA's executive director, says State Farm immediately came to the table to discuss allegations and remedies. Last year, however, NFHA asked the Department of Justice to investigate the other two companies. Nationwide, says Smith, "refused to discuss allegations and proactively sued HUD to block the government's investigation of a complaint. I have never seen such a bold step by an insurance carrier before."

Attorney Stephen Dane, who represents NFHA, says Nationwide has been largely unrepentant despite a $13 million settlement the company recently reached with the U.S. Justice Department. "They feel they have done no wrong and are without blemish. In my opinion, Nationwide does not want to do business in minority neighborhoods," says Dane.

Lorraine Brock, Nationwide's associate vice president for urban markets development, insists the company does not discriminate in offering homeowners' insurance and that the settlement "formalized a strategy that we had already undertaken. Much of what we've agreed to in the settlement was part of our formalized business strategy."

For a company that admits no wrongdoing, the settlement is going to be somewhat costly for Nationwide. The agreement mandates that the company provide $2.2 million annually for the next six years to provide financial assistance to low- to moderate-income home buyers seeking to purchase or repair single-family homes in predominantly minority neighborhoods. The agreement affects at least five, but not more than 10, of the following metro areas: Atlanta, Baltimore, Chicago, Cincinnati, Cleveland, Dallas-Fort Worth, Indianapolis, Philadelphia, Pittsburgh, Charlotte, North Carolina; Columbus and Toledo, Ohio; Little Rock, Arkansas; Louisville, Kentucky; Memphis, Tennessee; and Richmond, Virginia. The funds will be used to assist home buyers in minority neighborhoods with down payments, closing costs, below-market mortgage loans, second mortgages and home ownership counseling.

For its part, Allstate seems willing to refocus its initiatives at minority groups. As part of a recent agreement with NFHA and HUD, Allstate will work with NFHA to expand the company's Neighborhood Partnership Program (NPP), which helps identify inspection problems and provides safety tips. Allstate will also partner with urban community groups and homeowners associations to address risk mitigation and provide insurance education. Allstate has established its NPP in Atlanta, Chicago, Cleveland, Dallas, Detroit, Louisville, Washington, D.C., Houston, Milwaukee, New York and Philadelphia. Plans are under way to expand the program to include several other cities.

Just as significant, says Smith, Allstate is instituting a testing and training program for agents. And while Al Orendorff, a spokesperson for Allstate, says the company disputes allegations of redlining, the agreement, he adds, is "a productive partnership for us, NFHA, and our customers. This is a very good opportunity for us to do what we already do and improve upon it."