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Relaxing Standards for Homeowner Policies in Minority Areas

August 14, 1996

CHICAGO (AP) _ The Allstate Corp. says it has relaxed it standards for minority city dwellers seeking comprehensive homeowner insurance policies, but a fair housing group said Wednesday it sees no evidence changes have occurred.

The insurer, based in the Chicago suburb of Northbrook, said it began in April by removing restrictions on providing policies to homes more than 40 years old or worth less than $40,000. It eliminated a rule that limits policy payoffs to 150 percent of a home’s market value, something that might not cover the cost of replacing the building. In addition, it is increasing inspection requirements for homes being considered for coverage.

The policy change comes to light less than a month after industry leader State Farm Insurance announced it revised its urban guidelines to settle a discrimination complaint filed with the U.S. Department of Housing and Urban Development.

Allstate spokesman Al Orendorff insisted the changes were not directly linked to such complaints.

``Frankly, we found out that there’s good business out there that we can access. We’re just plunging ahead, doing what we normally do,″ he said.

Insurance industry analysts had predicted major insurers would follow the lead of Bloomington, Ill.-based State Farm, the country’s largest insurance company, in changing its rules. Allstate issues policies to one out of every eight houses in the country and is the largest insurer in inner cities.

But Shanna Smith, executive director of the Washington-based National Fair Housing Alliance, said the group’s studies found no evidence Allstate had changed its practices in recent months. She cited a discrimination complaint filed against Allstate by a black Cincinnati homeowner.

Candis Smith of Cincinnati contends Allstate and Nationwide Mutual Insurance Co. in May denied her replacement cost coverage on her $58,500 home, instead saying it could cover only the cost of the mortgage should the house be destroyed. Replacement cost coverage is the actual amount of money it would take to rebuild a home.

``Neither one of the insurance companies came out to look at the house; they told me over the phone they couldn’t give me insurance because the house was 50 years old,″ said Smith, who is no relation to Shanna Smith.

Shanna Smith contended Allstate routinely denies such coverage in black and Hispanic neighborhoods, while approving it in white areas.

``Allstate says they’re a big insurer of inner-city policies. That’s true,″ Shanna Smith said. ``They’re a big insurer of inferior policies that cost more.″

Orendorff said he wasn’t familiar with the Cincinnati complaint.

But he said changes are being made on a state-by-state basis, as regulators approve the new underwriting guidelines.

Shanna Smith said the fair housing group will ask HUD to complete its investigation of Allstate and Nationwide. The group also will continue to press for a Justice Department investigation of whether insurers have violated the federal Fair Housing Act by denying black and Hispanic homeowners the same insurance given to whites in comparable neighborhoods.

Allstate also faces a lawsuit seeking class-action status that contends it and 22 other companies refused policies or charged higher rates to people in Missouri’s minority neighborhoods _ a practice known as ``redlining.″

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