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Question 14 of 14 in The Insurance Company |
What is the practice called “redlining”? |
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"Redlining" refers to lines drawn on maps by insurance companies to mark the specific parts of a town where it does not want to offer insurance. Some companies refuse to offer insurance to homeowners and renters who live in inner cities or other areas which it does not want to serve. In the mid-1960's, some companies were found through congressional inquiry to have maps with red lines on them showing the actual areas where they refused to write insurance coverage. They considered these areas to be too risky.
Most states now have FAIR plans (Fair Access to Insurance Requirements) to provide high-risk properties availability of insurance protection. (Mostly located in urban or along coastal areas in which large loss ratios are common). Under FAIR plans (also referred to as "insurance pools"), insurance must be offered at a rate that does not exceed the voluntary market. These plans suffer high loss ratios but qualify for federal riot insurance and other special programs. FAIR plan applications may not be rejected because of location or exposure to environmental hazards -- things beyond the control of the property owner.
Insurance sold in a FAIR plan or insurance pool may have restrictions as to the perils covered.
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