Property Insurance: Data Needed to Examine Availability, Affordability,
and Accessibility Issues (Letter Report, 02/09/94, GAO/RCED-94-39).

In the wake of the 1992 Los Angeles riots, concerns have been raised
about the availability and affordability of insurance needed for
rebuilding. This report examines several issues involving property
insurance in urban areas. This report discusses (1) the types of data
that are now collected for determining the availability, affordability,
and accessibility of property insurance for homeowners and small
businesses in urban neighborhoods; (2) the types of data that would be
needed to assess these issues if available data are inadequate; and (3)
options that are available for collecting these data for homeowners
insurance.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  RCED-94-39
     TITLE:  Property Insurance: Data Needed to Examine Availability, 
             Affordability, and Accessibility Issues
      DATE:  02/09/94
   SUBJECT:  Insurance companies
             Data collection operations
             Comparative analysis
             Information analysis operations
             Demographic data
             Property damages
             Statistical data
             Insurance regulation
             Homeowners insurance
IDENTIFIER:  Los Angeles (CA)
             Illinois
             Minnesota
             Missouri
             Wisconsin
             St. Louis (MO)
             Kansas City (MO)
             Chicago (IL)
             
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Cover
================================================================ COVER


Report to the Chairman, Committee on Banking, Housing, and Urban
Affairs, U.S.  Senate

February 1994

PROPERTY INSURANCE - DATA NEEDED
TO EXAMINE AVAILABILITY,
AFFORDABILITY, AND ACCESSIBILITY
ISSUES

GAO/RCED-94-39

Property Insurance


Abbreviations
=============================================================== ABBREV

  ACORN - Association of Community Organizations for Reform Now
  GAO - General Accounting Office
  NAIC - National Association of Insurance Commissioners

Letter
=============================================================== LETTER


B-255047

February 9, 1994

The Honorable Donald W.  Riegle, Jr.
Chairman, Committee on Banking, Housing,
 and Urban Affairs
United States Senate

Dear Mr.  Chairman: 

Twenty-five years ago, the President's National Advisory Panel on
Insurance in Riot-Affected Areas found ".  .  .  a serious lack of
property insurance in the core areas of our nation's cities." The
Panel's report\1 outlined widespread practices by insurance companies
of drawing a red line around parts of a city that were considered
undesirable to insure (redlining).  Because insurance, a basic
necessity for a property owner, was unavailable in certain areas, the
report concluded that "Communities without insurance are communities
without hope." Following the report, actions were taken to provide
federal backing for insurance to protect against loss due to riots. 
Eligible states were those that began programs to provide insurance
to individuals and businesses that could not otherwise obtain it. 
The issue reemerged in the late 1970s but received relatively little
attention or study over the subsequent decade until news reports
following the April 1992 Los Angeles riots revealed potential
problems with the availability and affordability of insurance. 

In the wake of the riots and the resulting concerns about insurance,
you requested that we study several issues regarding property
insurance in urban areas.  Specifically, we agreed to identify (1)
the types of data that are currently collected for determining
whether property insurance for homeowners and small businesses is
available, affordable, and accessible in urban neighborhoods; (2) the
types of data that would be needed to assess these issues if
available data are not adequate; and (3) options that are available
for collecting these data for homeowners insurance. 

To address our objectives, we examined relevant literature; met with
industry trade associations, the insurance commissioners'
association, consumer groups, and statistical agents who collect
insurance data; and monitored congressional hearings held on the
topic.  We found little definitive literature or consistency among
the affected groups about what data would be needed to determine
whether property insurance is available, affordable, and accessible
in urban neighborhoods or about how to collect such data.  For this
reason, we developed our own analyses and conclusions with respect to
the data needed to assess these issues and the options available for
collecting the data.  We then discussed our results with these groups
and other experts to assess their validity and reasonableness. 


--------------------
\1 Meeting the Insurance Crisis of Our Cities:  A Report by the
President's National Advisory Panel on Insurance in Riot-Affected
Areas, Federal Emergency Management Agency, reprint of 1968 version
(Washington, D.C.:  June 1980). 


   RESULTS IN BRIEF
------------------------------------------------------------ Letter :1

Substantial amounts of homeowners property insurance data are
collected from insurance companies by statistical agents to assist
states in their regulation of insurance rates.  However, most of the
data are not useful for determining whether homeowners insurance is
available and affordable in urban neighborhoods because the data are
aggregated at a geographic level that is too large.  In 1994 and
1995, statistical agents will begin collecting homeowners insurance
data by the homeowners' ZIP code and could make data in this format
available to regulators if requested.  No data are currently
collected by the statistical agents to analyze homeowners insurance
accessibility issues.  In addition, no data are generally available
from statistical agents for analyzing the availability,
affordability, and accessibility of property insurance for small
businesses.  Without adequate data for analyses, those concerned
about urban homeowners and small business owners have had to rely
primarily on anecdotal evidence and industry-sponsored surveys to
evaluate whether affordability, availability, and accessibility
problems exist. 

We believe that the type of company-reported data that are needed to
analyze the availability, affordability, and accessibility of
homeowners insurance in urban neighborhoods depends on the issue to
be addressed.  For example, to examine availability, information on
the number of properties insured, by company and type of policy,
would be needed.  To review affordability-related issues, premium and
coverage amounts as well as loss data would also be needed.  To
determine how accessible insurance is--assuming it is available and
affordable--data on marketing activities and agents' locations would
be needed.  In general, these data would need to be collected at
geographic levels, such as at the ZIP-code or census-tract level,
that are small enough to be useful for availability, affordability,
or accessibility analyses.  They could then be analyzed in
conjunction with demographic data from the Census Bureau to provide
an indication of where problems might exist.  In contrast, for
commercial insurance, several format and definitional questions would
need to be answered before any agreement could be reached on data
needs because of the (1) lack of homogeneity among businesses, (2)
multiple locations of some businesses, and (3) difficulty in defining
"small business."

For homeowners insurance, we identified three options for collecting
data to analyze availability, affordability, and/or accessibility. 
The options are to require insurance companies to report (1) existing
data at a ZIP-code level, (2) existing data at a census tract level,
or (3) existing data plus accessibility-related data that are not
currently collected.  With any of these options, the data would be
more useful for identifying problems if the data could be easily
obtained by the public, as well as regulators.  However, we believe
that a number of additional factors, such as the ease of
implementation and volume of data, should be considered before
implementing any of these options. 


   BACKGROUND
------------------------------------------------------------ Letter :2

State governments have the primary responsibility for regulating the
insurance industry.  Since 1945, the legislative basis for this has
been the McCarran-Ferguson Act, in which the Congress declared that
continued state regulation of insurance is in the public interest.\2
States are responsible for regulating rates, monitoring the
availability of insurance, and assessing insurance firms' solvency. 
Nevertheless, the federal government retains oversight responsibility
for the regulation of insurance. 

Insurance statistical data\3 are used as part of the rate approval
process by states.  These data are typically reported by insurance
companies by rating territory to "statistical agents" who aggregate
the data--combining data on similar risks from many insurance
companies--on behalf of the states to create a statistically reliable
set of data.  However, a few large insurance companies compile and
report their data to the states independently.  Rating territories
vary in size but can be as large as the District of Columbia or the
city of Chicago. 

Insurance is a contractual agreement through which an individual
transfers the risk of a financial loss associated with an uncertain
future event to a company that specializes in assuming such risks. 
Insurance companies differentiate between risks in order to provide
coverage to individuals at a price commensurate with the expected
losses.  Similar risks that are located within the same defined
geographic territory, or zone, are grouped together into "risk
classes," or categories, and purchasers in these classes are charged
like rates.  Determining what these rates should be is referred to as
ratemaking.  As a result of this process, a wood-frame house, for
example, would be charged a higher rate for fire protection than a
brick house in the same area.  In those instances when a company
believes that the risk of loss is unacceptably high given the rate
that can be charged, it declines to offer coverage.  The
decision-making as to which risks to accept and decline is referred
to as underwriting.  The competitive nature of the insurance industry
gives companies the economic incentive to (1) seek out risk to assume
wherever they believe doing so is profitable, (2) estimate losses for
each risk class as accurately as they are able, and (3) price
policies in relation to the expected losses.  Individual insurance
consumers, on the other hand, make decisions on the basis of the
rates and coverage offered by insurance companies, the degree of risk
they are willing to bear, and their ability to pay for the coverage. 

Although, for many consumers, insurance is no more than a second
thought in the purchase of a house or operation of a store, they
nevertheless view insurance as important in mitigating the risks they
face.  A concern of community groups and urban residents is that
ratemaking and underwriting are sometimes "unfair." Many urban
residents, according to the groups, have difficulty in obtaining
quality insurance at an affordable price.  The industry, in contrast,
cites evidence that homeowners insurance is available to all but at
premiums that the industry believes reflect underlying risks.  These
conflicting viewpoints were discussed during congressional hearings
in 1993.\4

Some consumer advocates and researchers believe that insurance
companies are redlining.  The District of Columbia and 26 states have
specific laws against redlining.  In addition, most state insurance
laws require that rates not be excessive, inadequate, or unfairly
discriminatory.  Unfair trade practices acts also exist in most
states to prohibit unfair discrimination in insurance rules and
underwriting.  Although redlining is now most commonly defined as
bias because of the geographic location of the risk, there is a
racial component to the controversy that stems from the belief that
minorities are more likely to be affected by redlining because they
are more likely to live in a redlined area or to be the target of
redlining. 

Redlining is a term that has come to refer to a variety of related
insurance issues.  Three of these are the availability,
affordability, and accessibility of urban property insurance. 
Availability becomes an issue when insurance companies refuse to
write coverage or certain types of coverage for particular parts of
an urban area, leaving consumers with fewer options.  In markets
where there is limited availability, more policies are sold under
state-mandated insurance programs\5 or by companies unlicensed in the
state.\6 Affordability, a major concern for insurance consumers,
refers to whether the consumer can afford to purchase the insurance. 
A related issue is whether the premium being charged is appropriate. 
Some consumer groups contend that residents of low-income minority
areas pay disproportionately high premiums compared with the risk. 
Accessibility refers to how easily urban residents can gain access to
insurance coverage--assuming that insurance is available and
affordable.  When insurance companies do not advertise in a
particular area and agents that have contracts with major insurance
companies are not located in an area, consumers may be unaware of how
to obtain insurance or face greater obstacles in trying to purchase
it. 


--------------------
\2 Pub.  L.  No.  15, 79th Cong., 1st Sess., 59 Stat.  33, Mar.  9,
1945, 15 U.S.C.  1011-1015. 

\3 Data collected by states are divided into two
categories--financial and statistical.  Financial data pertain to the
financial health of companies, while statistical data relate to the
companies' practices.  The statistical data contain the type of
information that could be used in looking at availability,
affordability, and accessibility issues. 

\4 The Subcommittee on Commerce, Consumer Protection, and
Competitiveness, House Committee on Energy and Commerce, held
hearings on March 3 and April 26, 1993.  The Subcommittee on Consumer
Credit and Insurance, House Committee on Banking, Finance and Urban
Affairs, held hearings on February 24 and April 1, 1993. 

\5 These state-mandated insurance programs are usually referred to as
fair-access-to-insurance-requirements plans or as involuntary or
residual market plans.  The plans provide essential property
insurance to individuals and businesses that are unable to obtain
coverage through conventional sources. 

\6 These companies may be licensed in a different state and typically
offer specialized coverage.  They generally are not subject to rate
regulation. 


   MOST CURRENTLY AVAILABLE DATA
   ARE NOT USEFUL FOR DETERMINING
   IF AVAILABILITY, AFFORDABILITY,
   AND ACCESSIBILITY PROBLEMS
   EXIST
------------------------------------------------------------ Letter :3

Although substantial amounts of insurance data are collected by
statistical agents, most of these data, in their current form, are
not useful for determining whether homeowners and small business
property insurance is available, affordable, and accessible in urban
neighborhoods.  If homeowners property insurance data were collected
on a smaller geographic level, such as at the ZIP-code level, some of
them could be used to look at the availability and affordability of
insurance.  Among other things, data on the number of properties
insured, the type of coverage, and the dollar amount of the insurance
premiums are collected for homeowners insurance and would be useful
for studies of availability and affordability.  However, no
accessibility-related information--such as the location of company
agents and the number of solicitations by mail or telephone--is
collected by the statistical agents. 

Within the next few years, data collected by the statistical agents
for homeowners coverage are likely to be of greater use for assessing
availability and affordability issues because some statistical agents
are requiring that the data be reported on a ZIP-code level.  One of
the largest statistical agents is requiring, effective January 1994,
that member companies report homeowners insurance data by ZIP code,
while another will begin in 1995.  Together, these statistical agents
represent over 70 percent of the homeowners insurance market.  In
addition, another insurance company that represents about 20 percent
of the homeowners insurance market and reports independently already
has some data by ZIP code. 

Data specific to small businesses are not available from statistical
agents because insurance companies do not use a standard definition
of a small business.  Instead, data on all types and sizes of
businesses are included in commercial property insurance data. 

According to the two major statistical agents, commercial insurance
data will continue to be collected for rating territories.  The
representatives and officials from the National Association of
Insurance Commissioners (NAIC)\7

said that, in addition to the lack of homogeneity among businesses,
another complicating factor in collecting data at the ZIP-code level
is the likelihood of multiple company locations in different ZIP
codes being covered under a single policy, thereby making it
difficult to study availability by ZIP code. 

In addition to data collected by the statistical agents, industry
representatives and state insurance officials identified four states
that have a regular reporting requirement for homeowners insurance
data on a ZIP-code basis.  The states--Illinois, Minnesota, Missouri,
and Wisconsin--collect data on the number of properties insured
and/or policies by ZIP code.  In some cases, the data are reported
only for selected ZIP codes or only for selected insurance companies
on the basis of their volume of business.  Illinois and Minnesota
collect additional data by ZIP code on the number of renewals,
cancellations, nonrenewals, or applications denied.  Illinois and
Missouri routinely collect data by ZIP code, such as the amount of
the insurance premium, that could be used to examine the
affordability issues for homeowners insurance. 

Other states and NAIC have made periodic special requests for data to
examine the availability or affordability of insurance.  In addition,
some states keep data on insurance agents' locations.  In August
1993, NAIC requested ZIP-code level data on availability and
affordability issues for several types of insurance, including
homeowners, in 45 cities in 23 states.  Aside from these data,
anecdotal evidence and industry-sponsored surveys are what those
concerned about urban consumers have had to rely primarily on to
evaluate whether affordability, availability, and accessibility
problems exist. 

The extent to which the homeowners property insurance data collected
are used by states to examine availability and affordability varies
also.  The Missouri insurance department has used its data to compare
insurance companies' market shares in low-income St.  Louis and
Kansas City ZIP codes with their market shares statewide.  Missouri
has used other data to compare the cost per thousand dollars of
coverage between low-income black and low-income white neighborhoods. 
At the time of our review, the Illinois insurance department was
studying availability and affordability in the Chicago area.  Yet
insurance commission officials in Minnesota said that they had done
virtually no analysis of the data because of a lack of funds and
staff. 

In each of these four states, the data are also available to consumer
groups and the public.  The Association of Community Organizations
for Reform Now (ACORN) used data from these states in its study on
the availability of homeowners coverage in four cities.\8 ACORN
combined the insurance data with demographic information from the
Census Bureau to compare levels of coverage in neighborhoods with
different racial profiles and income levels. 


--------------------
\7 NAIC is an association of insurance regulators from the 50 states,
the District of Columbia, Guam, American Samoa, Puerto Rico, and the
Virgin Islands that promotes uniformity in state supervision of
insurance matters and recommends legislation in the various state
legislatures. 

\8 A Policy of Discrimination:  Homeowners Insurance Redlining in 14
Cities, ACORN (Feb.  4, 1993). 


   DIFFERENT DATA ELEMENTS ARE
   NEEDED FOR DIFFERENT ISSUES
------------------------------------------------------------ Letter :4

Examining the availability, affordability, and accessibility of
homeowners insurance requires different types of data from insurance
companies.  We believe that deciding upon the objective is the first
task necessary to determine the data needed from insurance companies. 
These data could be analyzed in conjunction with demographic data
from other sources to more fully answer availability, affordability,
and accessibility questions.  In general, data collected at a smaller
geographic level will be more useful because smaller units tend to be
more homogeneous.  The data can serve as a first step toward
identifying potential problems but will not provide enough
information to determine whether individual companies are unfairly
discriminating. 

Analyzing the availability of homeowners insurance requires having
data from insurance companies on the number of properties insured by
each company and the locations of the properties.  Also needed are
data to identify the types of coverage provided.  With these data,
geographic areas can be examined over time to identify where policies
are sold.  Insurer-provided data could be analyzed in conjunction
with census demographic data to compare policies sold in an area with
the number of homes.  The insurer-provided data could also be
examined on a company-by-company basis to determine which companies
are selling fewer policies in a designated area.  (See app.  I for
more details on the types of data needed.  App.  II discusses
examples of how these data and others might be used in practice as
well as the limitations in using the data.)

In addition, a review of insurance companies' underwriting guidelines
could help to explain why companies may not write policies in certain
areas.  For example, a company with restrictions on the age of
property would be less likely to provide insurance in urban
neighborhoods where the majority of the buildings are old.  To assess
whether there appears to be a sound basis for these guidelines,
regulators and consumer analysts could review them in conjunction
with data on companies' losses and census data.  Still, other factors
that cannot be discerned through a review of statistical data and
underwriting guidelines--for instance, a marketing strategy--may
explain the location of a company's policies. 

To begin to address the issue of affordability of homeowners
insurance, including the fairness of rates, requires additional data
on the amount of premiums charged and the amount of insurance
coverage.  These data could be used to determine whether insurance is
more costly in urban neighborhoods.  However, insurance could be more
costly because of higher risks.  To assess whether the higher rates
have an actuarial basis, at a minimum one would also need
industrywide data on losses and risk classifications.  Even then,
some distinctions among risks, such as those reflecting the condition
of the property, may not be captured by the classification system
and, thus, would be difficult to assess. 

Analyzing the accessibility of homeowners insurance or evaluating
whether racial discrimination could be occurring in certain areas
requires different data.  To examine accessibility requires analyzing
data on the number of agents by location--for those companies who use
sales agents--and the level of solicitation by mail or telephone--
for companies that sell directly to the public.  While comparisons of
insurer-provided data with demographic data from the Census Bureau
would allow for some analysis of the relationship between insurance
problems and race, to more directly assess whether racial
discrimination could be happening would require data on the race of
policyholders and rejected applicants. 

The greater complexities of commercial insurance make meaningful
analysis of availability, affordability, and accessibility through
the disclosure of data more difficult to do for a variety of reasons. 
First, since the type of business frequently affects coverage and
price and many types of businesses exist, the data would not make for
comparisons as meaningful as homeowners data would.  Second, a
definition of small business would need to be established to provide
a basis for collection.  And third, a method would have to be
determined for treating businesses with multiple locations.  Given
the difficulties, some researchers told us that other methods of
analysis, such as detailed surveys of small business owners in some
selected urban neighborhoods, could be done in lieu of systematic
data collection. 


      PROS AND CONS EXIST IN
      COLLECTING DATA AT SMALLER
      GEOGRAPHIC LEVELS
---------------------------------------------------------- Letter :4.1

In general, data collected at a smaller geographic level (i.e.,
ZIP-code level or census-tract-level data\9 ) will be more useful
because smaller units tend to be more homogeneous.  Aggregating data
by ZIP code rather than by the much larger rating territories
increases the potential usefulness of data elements.  In addition,
more data by ZIP code on homeowners insurance will be available
beginning in 1994.  However, in some cases, ZIP codes may be too
large and heterogeneous to identify problems in some individual
communities or to highlight demographic similarities among people
with insurance problems. 

Aggregation by census tract as opposed to ZIP code would ensure more
accurate matching to census demographic data to determine whether
common characteristics exist among underserved communities.  For
example, even though data on the race of policyholders are not
currently collected, a comparison of the census demographic data with
insurer-provided data on availability, affordability, and
accessibility could provide some insight into whether racial
inequities appear to exist.  However, industry officials said that
aggregating data by census tract, as opposed to ZIP code, would be
considerably more difficult because they would have to (1) purchase
software to determine a census tract designation for each policy and
(2) make major revisions to their computer systems to capture and
store the data.  At the time of our review, no reliable estimates
were available on the cost of reporting data by census tract. 

Aggregating data on losses by census tract for an individual company
would result in too little data to be statistically meaningful,
according to statistical agents.  They said that the volume of
company loss data needed to produce statistically valid information
on the appropriateness of the rates charged would generally require
aggregating many companies' data for an area significantly larger
than either a census tract or a ZIP code.  Even though extensive
aggregation is needed, building with smaller, more homogeneous
geographic units--such as census tracts--has the potential of
producing more homogeneous areas for analysis, and thereby more
distinct comparisons among various locations. 


--------------------
\9 A census tract is a small, relatively permanent division of a
metropolitan statistical area or selected nonmetropolitan county
designed to be relatively homogeneous with respect to population
characteristics, economic status, and living conditions. 


      PUBLIC DISCLOSURE OF DATA
      HAS BENEFITS AND LIMITATIONS
---------------------------------------------------------- Letter :4.2

Public disclosure of insurance data has benefits.  For example,
community groups suggested that they can use the data to signal where
unfair discrimination may exist.  Using data as a "flag," they can
persuade regulators to investigate companies' practices more
extensively.  In addition, community organizations emphasized that
public disclosure of insurance companies' practices helps the
industry to police itself, the benefit of which exceeds that gained
merely from regulatory review.  To get the full benefit of public
disclosure, community groups and researchers stressed that they must
be able to obtain any data disclosed in an easily accessible and
usable format. 

While public disclosure has benefits, certain types of disclosure
also have limitations.  Disclosure could infringe upon a company's
right to have trade secrets.  For example, industry officials
indicate that underwriting criteria are a means by which insurance
companies compete with one another.  Although some companies may have
an idea of what a competitor's guidelines are, they said that they do
not know for certain.  Individual insurance companies' loss
experiences are also considered proprietary.  Industry
representatives believe that reporting loss data by company could
give competitors an indication of an insurer's underwriting criteria. 

The collection and public disclosure of other types of data,
specifically the identification of the policyholder by race, may be
problematic as well.  Agents, insurance companies, and regulators
alike have expressed concern over introducing questions about race
into an application process that has until now frequently enabled
applicants to be racially anonymous.  Some believe that the
solicitation of information on race puts both agents and applicants
in an uncomfortable position and may even encourage a perception of
bias.  Others point out practical problems with collecting the data,
such as whether applicants would provide the information and what to
do when joint applicants are of different races. 


   OPTIONS FOR THE DISCLOSURE OF
   HOMEOWNERS INSURANCE DATA
------------------------------------------------------------ Letter :5

For homeowners insurance, we believe that alternatives for collecting
data to analyze availability, affordability, and accessibility can be
grouped under three options.  With any of these options, the data
would be most easily reported by insurance companies when done
prospectively as opposed to retrospectively, and would be more useful
if they were easily obtainable by the public.  Any of these options
could be required by the states--who have the primary responsibility
for regulating the insurance industry--or by the federal government
in its oversight capacity.  One option would be to require all
insurance companies to report statistical data by ZIP code, as will
be done in 1994 and 1995 by those insurance companies reporting to
major statistical agents.  A second option would be to require all
insurance companies to report statistical data but to specify that
they be reported by census tract.  A third option would be to require
all insurance companies to report, at the ZIP-code level, existing
data elements plus those not currently collected by statistical
agents, such as agents' locations and the race of applicants, in
order to more fully address all of the availability, affordability,
and accessibility issues.\10

Of these three options, the first is the easiest and least costly to
implement, since it essentially relies on data that are already
available or soon to be available for companies representing about 90
percent of the homeowners insurance market.  These data include key
elements needed to review the issues of availability and
affordability.  The impact on most of the insurance market would be
minimal because most insurance companies are already reporting or
preparing to report by ZIP code within the next 2 years.  Although we
believe that availability and affordability problems could be
obscured in some locations where ZIP codes are very heterogeneous,
for many other locations, this level of detail may be sufficient for
analyses.  Furthermore, when potential problems are found, regulators
could request census tract data for those ZIP codes.  Drawbacks to
this approach are that (1) community groups would be dependent upon
regulators to collect necessary detailed data within specific ZIP
codes, (2) it would be difficult to know whether and to what extent
problems are being masked by insufficient detail in the data, and (3)
new data needed to assess issues of accessibility and racial
discrimination would be unavailable. 

The second option provides a level of detail that we believe, in many
cases, will be the most useful for analysis, especially for doing
comparisons across income levels and racial groups.  This approach
would, however, require insurance companies to make substantial
modifications to their computer systems to collect, aggregate, and
store data by census tract.  The volume of data to manipulate and
store would expand significantly under this approach even if the
requirement for disclosure were only for currently collected data,
since census tracts are more numerous than ZIP code areas. 
Consequently, we believe that some restrictions might be warranted to
limit the volume of data and to ensure their manageability.  The
restrictions could include limits on the number of geographic areas
covered, the frequency of reporting by insurance companies, and/or
the number of data elements. 

Under the third approach, new data items to be collected at a ZIP
code level would be used to examine questions of accessibility and/or
racial discrimination more directly.  However, the new reporting
requirements would, in some cases, include data items that insurance
companies do not currently collect.  Furthermore, the possible
collection of data such as racial identity and the disclosure of
other data such as insurance companies' underwriting guidelines raise
concerns about individuals' and companies' privacy, respectively. 

In deciding whether to collect data and, if so, how much, several
additional factors need to be weighed, such as (1) how federal
mandates would affect state responsibilities and roles; (2) what
organization would collect and disseminate the data; (3) what the
expected cost would be to both insurance companies and to the
organization designated to accumulate and disseminate the data; (4)
how the data would be made available to the public; (5) what the
expected benefit and costs of the data collection would be; and (6)
whether methods other than data collection, such as providing
incentives to insurance companies who serve urban neighborhoods,
could produce change more quickly if problems are believed to exist. 


--------------------
\10 A fourth option, contained in the original versions of two bills
introduced in the 103rd Congress (H.R.  1188 and H.R.  1257) and
regarded by many in the industry as infeasible, advocates the
extensive collection of new and existing data elements, including
census tract designations, by individual policy. 


   CONCLUSIONS
------------------------------------------------------------ Letter :6

Although 25 years have passed since the nation's first presidential
report on insurance in riot-affected areas, questions have arisen
again about the availability, affordability, and accessibility of
property insurance in urban neighborhoods.  These questions have been
primarily the responsibility of the state governments to address;
however, the federal government does retain oversight responsibility
in the regulation of insurance.  Currently available data are
insufficient to determine the extent of current problems.  Without
adequate data for analyses, those concerned about urban consumers
have had to rely primarily on anecdotal evidence and
industry-sponsored surveys to evaluate whether affordability,
availability, and accessibility problems exist.  Data that are
collected for homeowners insurance will be more useful in examining
availability and affordability once the data are collected on a
ZIP-code level (beginning in 1994) and analyzed in conjunction with
Census Bureau data.  However, data on accessibility are not
collected.  Reducing the size of the reporting unit to census tracts
would, in most cases, increase the value of the data by enabling more
homogeneous units to be analyzed.  Any consideration of such
reporting would need to be weighed carefully against the additional
burden it places on companies to comply. 

In contrast to having some information on homeowners insurance, no
data are available to analyze availability, affordability, and
accessibility issues concerning property insurance for small
businesses.  Furthermore, several format and definitional questions
would have to be resolved before meaningful data could be collected
for small business insurance.  However, other methods of analysis,
including surveys of small business owners in some selected urban
neighborhoods, could provide useful information about the extent of
problems with the availability and affordability of insurance in
those areas. 

Whatever insurance data are reported in the future by insurance
companies will be more useful in assessing availability,
affordability, and accessibility issues if the public can easily
obtain them.  The data that can be readily reported by companies will
be useful for examining availability and affordability issues, but
will not be sufficient to determine conclusively whether unfair
discrimination exists or why.  However, such data would provide a
marked improvement over the knowledge available today and could serve
to point regulators more effectively in directions for further
probing. 


   AGENCY COMMENTS
------------------------------------------------------------ Letter :7

We discussed our findings and conclusions with senior officials from
(1) NAIC; (2) insurance trade associations and statistical
agents--the American Insurance Association, the National Association
of Mutual Insurance Companies, the Insurance Services Office, and the
National Association of Independent Insurers; and (3) consumer
groups--the National Insurance Consumer Organization, ACORN, and the
Consumer's Union.  NAIC, the trade associations, and the consumer
groups said that the report was well-balanced and generally accurate
and that the data elements we developed were reasonable.  However,
there was some disagreement concerning the relative costs and
benefits of reporting by census tract.  Industry officials believe
that reporting data by census tract would be more costly and less
beneficial than do consumer groups.  We have addressed the viewpoints
of the various groups in the report.  These groups and the
statistical agents also provided technical corrections, which we have
incorporated into this report.  As requested, we did not obtain
written comments on a draft of this report. 


   SCOPE AND METHODOLOGY
------------------------------------------------------------ Letter :8

To determine what types of homeowners and business property insurance
data are currently available and will be available in the future to
examine affordability, availability, and accessibility issues, we
reviewed NAIC's model plan for the collection of data and documents
summarizing the data collected by the two largest statistical agents. 
We also examined relevant literature and monitored congressional
hearings held on the topic.  Through our discussions with NAIC, the
statistical agents, and industry and consumer group representatives,
we identified four states that routinely require homeowners insurance
data at the ZIP-code level.  We also obtained information from these
states regarding their data requirements. 

To determine what types of data would be needed to address the issues
of availability, affordability, and accessibility for homeowners and
small businesses and how the data could be reported, we reviewed
relevant insurance literature, proposed bills, and state
requirements.  We also interviewed officials representing industry
trade associations, consumer groups, statistical agents who collect
insurance data, research organizations, and NAIC.  We obtained
documentation regarding their positions, if any, on proposed data
disclosure legislation.  However, we found little definitive
literature or consistency among the affected groups about what data
would be needed to examine availability, affordability, and
accessibility issues or how they could be reported.  For this reason,
we developed our own analyses and conclusions with respect to the
needs for additional data to assess these issues and options for
collecting these data.  We then discussed our results with these
groups and other experts to assess their validity and reasonableness. 
We conducted our review between April and September 1993 in
accordance with generally accepted government auditing standards. 


---------------------------------------------------------- Letter :8.1

As arranged with your office, unless you publicly announce its
contents earlier, we plan no further distribution of this report
until 30 days after the date of this letter.  At that time, we will
send copies of the report to NAIC and other interested parties. 
Copies will be made available to others on request. 

Please contact me at (202) 512-5167 if you or your staff have
questions.  Major contributors to this report are listed in appendix
III. 

Sincerely yours,

Judy A.  England-Joseph
Director, Housing and
 Community Development Issues


SUMMARY OF DATA ELEMENTS THAT
COULD BE USED TO ADDRESS
HOMEOWNERS INSURANCE AVAILABILITY,
AFFORDABILITY, AND ACCESSIBILITY
ISSUES
=========================================================== Appendix I

Data element                      Availability    Affordability   Accessibility
--------------------------------  --------------  --------------  --------------
Generally reported by insurance
companies to statistical
agents\a

Type of coverage: (policy form,   X               X
residual, or voluntary market)\b

Company name                      X               X               X

Number of exposures\c             X               X

Premium amount (in dollars)                       X

Amount of insurance coverage                      X

Number of claims\d                                X

Dollar amount of losses\d                         X

Risk classification                               X

Not reported to statistical
agents, but could be reported by
insurance companies

Underwriting guidelines           X

Number of cancellations,          X
nonrenewals, and written
declinations made by the
insurance company

Level of direct mail or                                           X
telephone solicitation

Number of agents                                                  X

Generally not collected by
insurance companies

Number of declinations made over  X
the telephone by the insurance
company
--------------------------------------------------------------------------------
\a These data are currently aggregated at a rating-territory level by
the statistical agents.  However, the two major statistical agents
plan to begin aggregating the data by ZIP code within the next 2
years. 

\b "Policy form" refers to the type of homeowners policy.  For
example, an H0-3 policy covers the home's contents and the structure
for multiple perils.  "Residual, or voluntary market" refers to
whether the policy was sold through state-mandated insurance programs
or through conventional sources. 

\c "Number of exposures" means the number of policies over a set
amount of time, such as years.  For example, a policy for one house
for 1 year would represent one exposure. 

\d Loss experience data would need to be aggregated across companies
to generate a statistically credible data set. 


POSSIBLE USES OF DATA FROM
INSURANCE COMPANIES
========================================================== Appendix II

Many types of analysis could be done to examine homeowners insurance
availability, affordability, and accessibility trends using data from
insurance companies in conjuction with census demographic
information.  Below are a few examples of how data might be used in
examining each of the issues, as well as some of the limitations of
such analysis. 

AVAILABILITY

One type of analysis would be to compare the total number of
properties that all companies report insuring in the designated area
with the total number of homes in the area as recorded in census
data.  If, for example, census data showed 1,000 homes in an area,
while companies reported insuring 900 homes in the area, then one
could estimate that about 90 percent of the homes in that area are
insured.  As part of this analysis, one would also want to compare
the proportion of properties insured by the type of coverage.  The
policy types--building-only versus building and contents coverage,
replacement value versus market value loss protection, and
state-mandated plan versus voluntary market--might vary depending on
the location. 

Comparing data from insurance companies with census data is not
without shortcomings.  First, the analysis is limited by the accuracy
of the census data to reflect the true number of homes.  The margin
of error will also increase as the census data ages and where data
are aggregated by ZIP codes rather than census tracts.  Second, some
insurer databases may not capture the true location of the insured
property if it is being rented.  And third, the analysis does not
allow one to conclude why houses might be uninsured or underinsured
and whether insurance is necessarily unavailable or simply not in
demand by homeowners in that area. 

An alternative analysis of availability would be to compare an
insurance company's share of the market in the designated urban area
with its share statewide.  In this method of analysis, one is
comparing an insurance company with itself to see whether the company
writes proportionately more or less of its policies in the designated
urban area.  These comparisons could also be made over time to assess
whether insurance companies are increasing or decreasing their shares
in certain areas. 

This second form of analysis has limitations as well.  As with the
first method, the market share analysis also fails to explain
differences.  There may be legitimate reasons why an insurance
company has proportionately lower market share in urban areas than in
the rest of the state.  Second, since statewide market share is not
generally available by type of homeowners policy, it would be
impossible to detect differences in the types of policies an
insurance company writes across the state.  And third, even if an
individual company is not writing in a designated area, this need not
imply that there is an availability problem, especially if other
insurance companies are writing there. 

AFFORDABILITY

To compare trends in the cost of insurance between different
geographic areas, one could calculate the average premium paid per
similar property and policy coverage in the designated areas.  It is
important to distinguish between different types of policies as much
as possible, since differences in coverage have a bearing on cost. 
Likewise, the dollar amount of insurance would affect the
premium--more expensive homes are more costly to insure but would
normally have a lower cost per thousand dollars of home value.  The
affordability data could also be analyzed in conjunction with census
demographic information to determine whether insurance tends to cost
more in certain areas. 

To assess whether premiums charged appear to have an actuarial basis,
one would want to compare premiums with actual loss experience across
different risk classifications and geographic areas.  In this way,
one can see, for example, whether a difference in rates charged to
similar risks reflects a difference in loss experience in different
geographic areas.  Yet multiyear data may be needed to generate a
credible database, and some differences in rates may not be clearly
explained through this analysis.  Individual insurance companies may
differ in the premiums they charge because they base their ratemaking
analysis on different data.  The largest insurance companies in an
area often define rating territories differently, and they may
consider additional risk factors that others do not.  In addition,
some insurance companies base their rates on their own loss
experience, while others use an aggregated database that reflects the
loss experience of many insurers.  As a result of variations such as
these, what looks like an adequate premium for one insurance company
may not to another. 

ACCESSIBILITY

For insurance companies that use sales agents, one could analyze the
geographic distribution of agents to gauge how accessible agents are
to consumers.  For insurance companies that market their products
directly to consumers, one could analyze the geographic distribution
of their telephone and mail solicitations.  Coupled with census
demographic information, these data could also be used to evaluate
whether agent locations and company marketing campaigns tend to
concentrate on certain types of neighborhoods or income groups.  The
analysis would not, however, explain why agents locate where they do
or why insurance companies concentrate their marketing efforts in
certain areas.  Neither could one conclude, using accessibility data
alone, that agents are not selling insurance in areas beyond their
office location.  It is possible that an insurance company without
agents located in a specific area could still have the largest market
share there. 


MAJOR CONTRIBUTORS TO THIS REPORT
========================================================= Appendix III

RESOURCES, COMMUNITY, AND ECONOMIC
DEVELOPMENT DIVISION, WASHINGTON,
D.C. 

Jacquelyn L.  Williams-Bridgers, Associate Director
Marnie Shaul, Assistant Director
Susan H.  Beekman, Evaluator-in-Charge
C.  Bernard Myers, Staff Evaluator
Sandra A.  Potter, Intern
