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What is the practice called "redlining"?

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asked Aug 2, 2010 by anonymous

1 Answer

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The term "redlining" refers to a practice of insurance companies marking out areas in which they refused to offer insurance coverage on maps with red lines. These areas are typically high crime neighborhoods, abandoned inner city properties, and coastal zones where frequent storms wreak large amounts of damage.

For properties inside such high risk zone, insurance may only be available through the FAIR act. This requires insurance companies to participate in a pooled fund where properties are insured at approximate market values. Because it is a collective pool, this coverage comes from the FAIR organization in your area, not from individual insurance companies.

Redlining has been challenged as a form of bias, but insurance companies maintain that risk assessment is vital to offering affordable insurance to the largest number of people, and excluding normal insurance sales to some areas is the only way to maintain affordable premiums for the larger group of less risky property owners. As an example, your auto insurance rates will be higher if you live in an area that is known to have a large amount of gang or drug activity, or other aspects of high crime.

answered Aug 2, 2010 by anonymous
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