Let The Home Buyer Beware

Insurance carriers come under fire for racial redlining and price disparities

Chicago. The discrimination too 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.”

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