Urban Decline or Disinvestment: Uneven Development, Redlining and the Role of the Insurance Industry

The insurance redlining debate poses challenging policy issues for public officials and theoretical concerns for urban sociologists. Using disclosure laws recently enacted in a few states, researchers can now begin examining the underwriting practices of insurers by neighborhoods in selected cities. In this initial exploratory study, we review the controversy and some pertinent general conditions in the property casualty insurance industry. Then we examine the activity of property insurers in Chicago. We find that residents of neighborhoods having a high concentration of minority or low income families, or older homes, are experiencing difficulty in obtaining insurance, and for reasons that cannot be explained by those factors accounting for most insurance company losses, i.e., incidence of fire and of theft. These findings suggest—as its critics have charged and the insurance industry has generally denied—that redlining of many urban communities and discrimination against the poor and minorities are facts of insurance life, and contribute to the deterioration of those communities. We offer some policy recommendations for eliminating redlining and for stimulating reinvestment in urban neighborhoods. We also suggest that future research on issues pertaining to the uneven development of metropolitan areas will be more informative if based on the structural/disinvestment approach than on the individualistic/natural evolutionary one which has long dominated the study of urban sociology.