[Congressional Record Volume 142, Number 138 (Monday, September 30, 1996)]
[Senate]
[Pages S12021-S12022]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        AUTHORIZING HUD TO REGULATE PROPERTY INSURANCE PRACTICES

 Mr. GRASSLEY. Mr. President, the Department of Housing and 
Urban Development [HUD] is aggressively pursuing regulation of property 
insurance practices, supposedly because of the Federal Fair Housing Act 
[FHA]. HUD takes the position that the FHA, which prohibits 
discrimination in housing on the basis of race, sex, national origin, 
and other similar factors, authorizes HUD to regulate property 
insurance practices that purportedly affect the availability of 
housing. I strongly disagree with this interpretation by the FHA. I do 
not believe that HUD has the authority to regulate the insurance 
industry, let alone have any recognizable expertise in this area.
  HUD's insurance-related activities are directly contrary to the 
longstanding position of Congress that the States should be primarily 
responsible for regulating insurance. In the McCarran-Ferguson Act of 
1945, Congress expressly provided that, unless a Federal law 
specifically relates to the business of insurance, that law shall not 
interfere with State insurance regulation. The FHA, while expressly 
governing home sales and rentals and the services that home sellers, 
landlords, mortgage lenders, and real estate brokers provide, makes no 
mention whatsoever of the service of providing property insurance. 
Moreover, a review of the legislative history shows that Congress 
specifically chose not to include the sale or underwriting of insurance 
within the purview of the FHA.
  HUD's assertion of authority regarding property insurance is a major 
threat to State insurance regulation. In August 1994, HUD announced 
that it was undertaking a new rulemaking that would prescribe use of 
the disparate impact theory in determining property insurer's 
compliance with the FHA. Although HUD has stalled on the promulgation 
of such disparate impact rules, it remains firm in its position that 
the disparate impact test applies under the FHA, and that the FHA 
applies to insurance.
  Under the disparate impact theory, statistics showing that a practice 
has a disparate impact on a particular protected group may suffice to 
establish a prima facie case of discrimination, without any showing of 
discriminatory intent. The use of this theory may be appropriate in 
certain contexts, but in the area of insurance, it is wholly 
inappropriate and, in fact, potentially harmful.
  The disparate impact theory assumes unlawful discrimination based 
solely on statistical data. Thus, under a disparate impact approach, 
statistics showing differences in insurance coverages by geographic 
area, wholly attributable to different risks in those areas, could be 
assumed to reflect racial bias merely because of a correlation between 
race and geographical locations.
  The application of the disparate impact test to property insurance 
practices could undermine the ability of State regulators to ensure, as 
they are required by law to do, that the companies under their 
jurisdiction remain solvent. If insurers accept loss exposures to 
protect themselves against charges of disparate impact, or if they 
classify risky loss exposures as lower-risk exposures for this purpose, 
they may incur financial problems, because premiums collected may be 
far lower than the amount needed to cover losses incurred, and policy 
holders' surplus will have to be used to pay claims. If an insurer 
engages frequently in such improper underwriting, its surplus can be 
drained to the point of insolvency.

  It is precisely for the purpose of preventing insolvencies while 
providing a means to make insurance more available that the States have 
adopted Fair Access to Insurance Requirements [FAIR] plans. HUD's 
disparate impact approach is flatly inconsistent with these 
congressionally authorized plans. Generally, the FAIR plans make 
property insurance available to applicants who have been rejected by 
the voluntary insurance market so that higher risks may be allocated 
equitably among insurers operating in a State. The FAIR plans thus help 
to prevent

[[Page S12022]]

individual insurer insolvencies by providing for risks to be spread 
among all property and casualty insurers.
  HUD's disparate impact approach fails to take account of the careful 
balancing of objectives reflected in the FAIR plans. Indeed, HUD's 
approach completely ignores the key difference between unfair 
discrimination and sound insurance underwriting practices that take the 
actual condition of the property into consideration. Clearly, it is 
unfair to discriminate on the basis of race, color, religion, sex, 
familial status, national origin, or handicap. But what HUD fails to 
recognize is that it is not unfair--indeed it is legally required by 
the States--for an insurer to evaluate the condition of the property 
and determine the risk. State insurance statutes not only deem these 
risk assessments to be legal, but indeed require them to prevent 
unfairness.
  States and the District of Columbia have laws and regulations 
addressing unfair discrimination in property insurance. The State 
legislatures have debated and enacted a wide variety of 
antidiscrimination provisions to ensure that an insurer does not use 
race or other improper factors in determining whether to provide a 
citizen property insurance. The States are actively investigating and 
addressing discrimination where it is found to occur. In light of these 
comprehensive protections against discrimination, HUD's insurance-
related activities are yet another example of unnecessary and 
duplicative Federal bureaucracy.
  Let HUD enforce FAIR, and let the States regulate the insurance 
industry. 

                          ____________________