Insurance Redlining and Disparate Impact: The Application of a Federal Civil Rights Doctrine to Homeowners Insurance

ABSTRACT: Allegations of inner‐city insurance redlining are increasingly facilitated through the jurisprudence of “disparate impact,” a legal doctrine holding that a policy or practice based on race‐neutral criteria may nevertheless constitute illegal discrimination if it has a disproportionate adverse impact on racial minorities or women. Disparate impact analysis would require insurers to document a precise cause‐and‐effect relationship between a challenged underwriting variable and its associated risk. Moreover, they would be required to show that no “less discriminatory” risk‐assessment technique is available. If it is not possible—or too costly—to meet this burden, insurers will have no choice but to abandon the use of those risk‐selection practices and cost‐based pricing mechanisms that yield a disparate racial impact. This will result in higher premiums and less insurance availability for consumers. Furthermore, dubious charges of unfair discrimination will exacerbate racial tensions and divert attention from the social and economic pathologies of which insurance costs are merely symptomatic.