Affordability of home insurance in the neighborhoods of some American metropolises is a problem that has caused a stir south of the border. Several consumer groups in this country have criticized insurers for redlining.
Originally, the term was used to describe the refusal to serve certain inner-city areas. The anti-redlining provisions adopted by various states have had the effect of extending the meaning of this concept to the refusal to issue or renew an insurance policy, or to cancel it because of the building's geographical location. To better understand this issue, we conducted a brief literature search on the phenomenon of redlining and the legislative measures adopted in the United States to remedy the situation.
Studies in this country have concluded that there is a relationship between income and the likelihood of obtaining and retaining home insurance. In addition, disadvantaged communities would be disproportionately affected by certain underwriting criteria used by insurance companies. We also note that the United States has developed a much more interventionist approach to insurance than Canada.
For example, some states have set up risk-sharing programs ("pools") that provide basic coverage for consumers living in urban areas where it is difficult to obtain insurance. In addition, some states have required insurers to disclose specific information about their activities, such as the geographical distribution of policies issued or their underwriting criteria.
We also conducted a telephone survey of insurance agents and brokers in three Canadian cities: Calgary, Halifax and Montreal. We wanted to ascertain whether insurance companies refuse to insure consumers for reasons related to the geographical location of their home, and whether they have policies or practices in place that have the effect of making home insurance less accessible in disadvantaged areas.
Our investigation revealed that this is not a problem in Halifax or Calgary. In fact, no insurance company refused to insure our investigator when he claimed to live in an economically disadvantaged neighbourhood. What's more, in these cities, insurance companies charge the same or similar premiums in economically disadvantaged neighborhoods as they do in neighborhoods with a higher standard of living.
In Montreal, on the other hand, there were problems with access to insurance. In fact, two of the thirteen companies contacted refused to insure a home located in the Hochelaga-Maisonneuve district. In addition, nine of the thirteen companies contacted charged a higher premium to insure a home in this area.
Moreover, the difference in cost between the premiums charged for the economically disadvantaged area and the area with a higher standard of living is sometimes significant. Four companies charge between 30.1% and 58.1% more to insure this area. Finally, our investigation revealed that some insurance companies use credit files or risk scores to select their clientele during the underwriting process, regardless of where our interviewer claimed to live.
