Southern Farm Bureau Casualty Insurance Comments on HUD Implementation of Fair Housing Act Disparate Impact Standard

WASHINGTON, Oct. 30 -- Duff Wallace, president and CEO of Southern Farm Bureau Casualty Insurance Co., Ridgeland, Mississippi, has issued a public comment on the Department of Housing and Urban Development's proposed rule entitled "HUD's Implementation of the Fair Housing Act's Disparate Impact Standard". The comment was written on Oct. 18, 2019, and posted on Oct. 23, 2019:

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On behalf of Southern Farm Bureau Casualty Insurance Company, we appreciate the opportunity to provide comments in response to the Department of Housing and Urban Development's (HUD's) Notice of Proposed Rulemaking published on August 19, 2019.

We commend HUD for recognizing the need to amend its 2013 Disparate Impact Rule in light of the limitations that the U.S. Supreme Court placed on disparate impact liability in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc., 135 S.Ct. 2507 (U.S. 2015). The Supreme Court's holding is clear: The Fair Housing Act permits disparate impact claims, but the liability for such claims must be limited in order to allow employers and other regulated entities "to make the practical business choices and profit-related decisions that sustain a vibrant and dynamic free-enterprise system." The Court's decision stresses that a plaintiff must prove that the defendant's practices are "artificial, arbitrary and unnecessary barriers" to housing and that there is a "robust causal connection" between the defendant's policies and the disparity shown. HUD's 2013 Disparate Impact Rule with its three part burden-shilling approach does not contain these safeguards. Without these limitations, HUD's Disparate Impact Rule will thwart legitimate business practices and require courts to second-guess legitimate business practices. To bring the Department's 2013 rule into compliance with the U.S. Supreme Court's decision in Inclusive Communities and to provide a consistent standard for proving disparate impact liability claims, the Department must amend its current Disparate Impact Rule. If the Department does not do so, businesses like ours will be subjected to abusive disparate impact claims and will be subject to liability for "racial disparities they did not create." As a multi-state property and casualty insurer, we urge the Department to finalize its proposed revisions to the burden-shifting framework for proving disparate impact liability. These changes are necessary to comply with the limitations on disparate impact liability set forth by the Supreme Court in Inclusive Communities.

As a homeowners insurer that relies on risk based pricing and underwriting, we further urge HUD to adopt an exemption or safe harbor from the Disparate Impact Rule for the risk based pricing and underwriting of homeowners insurance. This exemption is required because the application of the Disparate Impact Rule would violate the MeCarran Ferguson Act and intrude on the role of the states in regulating the business of homeowners insurance. It would restrict an insurer's use of rating factors that are race neutral and approved for use by state insurance departments. Challenges to risk based pricing and underwriting criteria would require a federal court to second-guess what a state regulator has already approved for use, a practice that the McCarran Ferguson Act strictly prohibits. Homeowners insurers must be able to rely on risk based pricing in order to price insurance accurately and competitively. If we must disregard actuarial risk data in favor of protected class data, we will be in violation of state law, which requires us to rely on objective, actuarially sound data in developing rates and providing insurance. It would restrict our right as homeowners insurers to rate risks individually. Such adverse selection and pricing would decrease the availability of homeowners insurance and threaten the solvency of the homeowners insurance market. Homeowners insurers must be free within the confines of state law to rely on actuarially sound risk based pricing and underwriting factors, which take into account the expected value of all future costs associated with each individual risk transfer. Charging everyone the same rate regardless of the risk is an unsound business practice that would bankrupt the homeowners insurance market. The state law frameworks that govern the pricing and underwriting of insurance are intended to prohibit discriminatory practices while ensuring a properly functioning insurance market.

Applying the Disparate Impact Rule to risk based pricing and underwriting also is in conflict with the filed rate doctrine, which prohibits private claims for damages based on challenges to filed rates. It is the responsibility of the state insurance department to ensure that filed insurance rates are not discriminatory, unreasonable, excessive or inadequate. State law requires insurers to set rates based on past losses, anticipated future losses and other neutral actuarial factors. Allowing a federal court to re-evaluate or second-guess the propriety of an insurer's rates after a state insurance department has approved the rate and in some cases, the methodology used to determine those rates, would undermine state authority in violation of the filed rate doctrine and jeopardize homeowners insurers' use of actuarially sound underwriting and rating factors.

Providing an exemption for risk based pricing and underwriting of homeowners insurance would not mean that homeowners insurers would be free to discriminate based on race, national origin or other protected characteristics. Pursuant to the McCarran Ferguson Act, it is the state's responsibility to monitor the pricing and provision of homeowners insurance. State laws do not allow homeowners insurers to consider race, gender or any other protected characteristics when developing rating and underwriting factors. The proper venue for individuals or protected groups to question the fairness of a rate or underwriting practice is in the state legal system.

For the reasons discussed above, we respectfully request that the Department finalize its revisions to the burden- shifting approach used to prove disparate impact liability to conform to the U.S. Supreme Court's decision in Inclusive Communities. We also urge the Department to implement an exemption or safe harbor for the risk based pricing and underwriting of homeowners insurance in recognition of the potential conflicts that arise due to the MeCarran Ferguson Act and filed rate doctrine.

Sincerely,

Duff Wallace

President - CEO

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The proposed rule can be viewed at: https://www.regulations.gov/document?D=HUD-2019-0067-0001

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