Insurers fight News on probe of redlining
Threaten lawsuit to prevent release of ‘proprietary’ data
Seven major auto and home insurers in New York State are fighting to prevent the release to The Buffalo News of state regulatory data that could show whether insurers are avoiding business in certain ZIP codes.
The insurers, including State Farm Mutual Insurance Co. and Nationwide Mutual Insurance Co., are threatening to go to federal court to block the state Insurance Department from providing the data under the state’s Freedom of Information Law.
They argued, in separate letters to state regulators objecting to the FOIL request, that the records are confidential and contain “proprietary” and “commercial” information that contain “trade secrets” not available anywhere else. They also claim the records were accumulated at significant cost over time. Even internally, they say, the data is closely guarded, password-protected and accessible to only a few people.
And they say that release of the data would harm their competitive positions by showing exactly where they are doing business, where they aren’t, and how much success they have had. In turn, they argue, that would allow rivals to decide where to focus marketing efforts and even how to price policies to gain market share.
“The release of this information to the public has the potential to cause substantial injury to our competitive position due to the value and advantage it provides to our competitors in New York about the volume of business we quoted, issued and rejected over the past five years in a particular area,” wrote Lori Borrill, business systems specialist at Fireman’s Fund Insurance in San Francisco, a subsidiary of Germany’s Allianz.
State Farm counsel Gregg R. Mecherle even described release of such information as “inherently unfair and anticompetitive,” and called it a violation of the due process protections enshrined in the Fifth Amendment to the U. S. Constitution.
Finally, the insurers say they submitted the information to regulators with the understanding that it would remain confidential — even though the submission was not voluntary but required by state law.
“The USAA Group provided the . . . report to the [Insurance] Department for the sole purpose of allowing the Department to carry out its regulatory function,” USAA compliance analyst Debra Guevara wrote. “No other use or distribution of this information was contemplated by USAA Group in the furnishing of this information to the Department.”
But state regulators rejected those arguments in approving the FOIL request Monday, saying they mirrored those made by insurers four years ago and recently determined by the state’s highest court to be insufficient to exempt the data from release.
“At bottom, the arguments offered by the insurers here are tantamount to those rejected [by the court],” associate attorney Sally Geisel ruled this week. “Although the [Insurance] Department previously concluded that such information is exempt from public disclosure, the Department is now constrained . . . to deny the exemption requested here.”
The information must now be provided to The News within seven business days — by next Thursday — unless the insurers appeal. The Insurance Department declined further comment.
“I don’t think that many of the companies are satisfied with the state’s decision yet,” said Ellen Melchionni, president of the New York Insurance Association, a trade group for property and casualty insurers. “There’s been some discussion about challenging this in federal court. They still believe that the information they have is proprietary and shouldn’t be shared.”
Melchionni said no decision has been made, but she expects at least one insurer to appeal.
“Until we’ve been told otherwise by the courts, they want to try to hang onto this,” she said. “I think they probably should. This is a fight that they feel is really worth fighting. I hope that they do.”
Besides State Farm, Nationwide, Fireman’s Fund and USAA, the other insurers are Zurich Financial Services subsidiary Farmers Insurance Group, The Hartford Financial Services Group and Chubb Corp.
The issue concerns a pair of state laws designed to prevent discrimination in underwriting. Under those laws and the related Regulations 90 and 154, insurers must track the number of auto and home insurance policies applied for, rejected, issued, renewed, cancelled and non-renewed, by ZIP code. The companies must furnish this data yearly to the Insurance Department upon request.
The News is seeking to study the data to look for patterns in denials, cancellations and non-renewals that could indicate illegal “redlining,” where companies deliberately avoid certain geographic areas while doing business around them.
“We believe it is clearly a matter of public interest if insurers are avoiding doing business in particular zip codes,” said Buffalo News Executive Editor Margaret Sullivan. “If so, issues of fairness, discrimination and following the law arise and should be examined openly.”
State Farm’s Mecherle argued that the data wouldn’t show if a company is redlining without looking at additional information.
“Making an insurer’s data public . . . does not satisfy any overriding public policy by educating the public as to whether the insurer is redlining,” he wrote in his letter to regulators. “But disclosure does have an immediate an detrimental effect on the insurer.”
But banks and mortgage lenders have been subject to similar requirements under the Home Mortgage Disclosure Act for more than 30 years, and that’s since been expanded to include small business lending as well. Community advocates credit the HMDA law and the Community Reinvestment Act with steering billions of dollars in lending and investment to low-income and minority communities since 1977.
