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In the Public Interest
Hold the Insurance Industry Accountable
By Ralph Nader, Washington, DC
Insurance companies—fresh from their lobbying victories in the last Congress—are back on Capitol Hill with their hands out again. Under legislation circulated by the insurance industry's favorite Senator, Chris Dodd of Connecticut—taxpayers, not the insurance companies, in the future would be required to pay major insurance claims arising out of attacks like those on the World Trade Center. In addition, there are reports that the industry may get special tax breaks as part of the post-attack legislative rush.
None of this is surprising. Insurance has always lived a charmed life on Capitol Hill. This is the same industry that was given a free ride two years ago when Congress passed legislation to allow banks, securities firms and insurance companies to merge and form giant conglomerates which ultimately will dominate the financial sector in this nation and in much of the rest of the world.
Congress let insurance corporations enjoy the fruits of these financial services conglomerates without placing any demands on the companies. As a result, the insurance companies are allowed to remain outside of federal safety and soundness regulation. They face only limited supervision by the fifty state insurance departments, most of which are sadly underfunded, poorly staffed, and dominated by the industry they "regulate." Even the handful of well-run state insurance departments are in no position to regulate giant corporations that operate across state lines and in dozens of countries around the world.
For many communities, particularly low- and moderate-income and minority neighborhoods, Congress' refusal to regulate insurance companies is a crushing blow. Lobbyists for the companies threatened to scuttle the financial services legislation in 1999 if Congress included provisions to help curb redlining of inner city neighborhoods by insurance companies. Court cases and studies by academics, fair housing councils, community organizations and others have established that many companies resist writing policies or provide only limited overpriced insurance products in such areas.
More than three decades ago, the President's National Advisory Panel on Insurance in Riot Affected Areas outlined the problem: "Insurance is essential to revitalize our cities … Without insurance, banks and other financial institutions will not—and cannot—make loans … housing cannot be repaired … efforts to rebuild our nation's inner cities cannot move forward … Communities without insurance are communities without hope."
A convincing case for a bailout of the insurance companies has not been made. But, if Senator Dodd moves aid for insurance forward, progressive members of the House of Representatives and Senate need to demand that anti-redlining measures be applied to the industry.
The Home Mortgage Disclosure Act (HMDA), adopted in 1977, requires banks and other depository institutions to submit annual reports about where they make mortgage loans by census tract. This has proven an extremely valuable tool in tracking and rooting out discriminatory lending practices in low- and moderate-income and minority communities. A HMDA-type requirement should be adopted that would require insurance companies to report where they write policies and make investments.
The Community Reinvestment Act (CRA) was enacted in 1979 to require banks to help serve all areas of their communities, including low- and moderate-income neighborhoods. CRA has helped move billions of dollars of credit into inner cities and depressed rural areas. At the same time, it has opened new markets which many banks have found profitable. A CRA-type requirement should be included to require insurance companies to help serve and invest in all areas of their communities.
If the Congress goes forward with an aid package, provisions should also be adopted to ensure that no federal monies, guarantees or other bailout benefits will flow to insurance companies which have been found in violation of fair housing laws or other anti-discrimination laws. Certainly, citizens should not be required to contribute their tax money to assist corporations that discriminate against them.
Enactment of anti-redlining reforms for the insurance industry should not be considered an impossible task. In 1993, Massachusetts Representative Joe Kennedy succeeded in moving an HMDA-style insurance reporting requirement through the House against stiff opposition from the insurance companies. The political muscle of the industry, however, kept the measure from being considered in the Senate.
During the consideration of the financial services legislation in 1999, the battle for HMDA-CRA responsibilities for insurance companies was led by three members of the House of Representatives: Tom Barrett of Milwaukee, Barbara Lee of Oakland, and Luis Gutierrez of Chicago. The insurance lobby eventually defeated these initiatives, but the three succeeded in putting a lasting spotlight on the issue.
Barrett, Lee and Gutierrez should walk over to the Senate and insist that Senator Dodd, the point man for the insurance bailout package, and Senator Paul Sarbanes, chairman of the Banking Committee, incorporate federal regulation—including anti-redlining provisions—in any aid plan that might be considered by the Committee.
Congress needs to examine carefully all of the proposed post-attack bailouts, with full hearings and full consideration on the floor. Congress' deliberations should go beyond the obvious self-interest of the companies and include people’s concerns and needs—not the least of which should be statutory assurances that federally-assisted corporations will not be allowed to discriminate against citizens and redline neighborhoods.
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