CEJ recommends the Department exercise its regulatory responsibility and immediately investigate the underwriting, marketing and sales practices of Nationwide, USAA, Farm Bureau, State Farm and Safeco. It should then take swift and decisive action to end the practices that result in redlining. The state requires all drivers to carry auto insurance, so it has a duty to protect consumers from unfair discrimination by insurers.

Second, the Department should more aggressively investigate redlining and unfair discrimination by using "testers." In testing, paired "shoppers" of insurance are matched on all characteristics except their race or the racial composition of their neighborhood. Consumer advocates and regulators throughout the country have successfully used testers to identify and ultimately reduce insurance redlining.

Third, the Department should take prompt and decisive action to stop illegal and unfair discrimination by insurers. In September 1996, CEJ identified a new and illegal underwriting guideline by one of Texas’ largest auto insurers. This illegal guideline made it more difficult for low income consumers to comply with financial responsibility laws. The Department agreed that the guideline is illegal, but took months to even begin an investigation and to date has not issued a cease and desist order or initiated disciplinary action.

Fourth, the Department should follow-up on the Houston redlining task force created in 1994. That task force included the Department, insurers, and community leaders who all agreed that there is an availability problem and worked together to solve the problem. Although several insurers made commitments to increase their writings or take other steps in those underserved areas, the Department has done nothing to ensure that insurers have kept those promises.

Fifth, the Department should pass rules to prohibit unfair underwriting guidelines that are not risk-related. Underwriting guidelines are the rules used by insurers to determine if they will offer coverage to a consumer, and if so, at what price. Although the Department has the authority to prohibit the use of unfair underwriting guidelines, it has failed to do so. Consumers Union, for instance, petitioned the Department to adopt rules in July of 1996, one of which would prohibit the blacklisting underwriting guideline described below. Although state law required the Department to act on the petition within 60 days, the Department has failed to take any action on it.

The Commissioner should bar the use of the following underwriting guidelines:

• Credit History—many insurance companies subscribe to the credit history scoring service of Fair, Isaac. The Fair Isaac product takes information in a consumer’s credit report and creates a score—the higher the score the more attractive the risk to insurers. Fair, Isaac refuses to show regulators the inner workings of its credit scoring model, which may penalize lower income consumers.

• Prior Insurance Carrier/Blacklisting—companies have used underwriting guidelines which deny coverage to consumers who have already been turned down by other insurers or covered by non-standard companies (like County Mutuals). Consumers who are already the victims of redlining continue to face discrimination because insurance companies rely upon actions of other insurers instead of making their own independent business decisions. This underwriting practice is profoundly anti-competitive.

• Employment and Residencial Stability—underwriting guidelines which deny auto insurance to people who have recently changed jobs, been unemployed, moved or do not own their own home also punish poor and minority communities where employment is scarce. These guidelines also have an unfair impact on people who rent.

• Occupation—some insurers deny coverage to consumers in low-wage jobs. For instance, they insure attorneys but refuse to insure clerical workers. Occupation related guidelines have a disproportionate affect on poor and minority communities.