AVAILABILITY OF INSURANCE IN
MILWAUKEE, WISCONSIN
Y 4. B 22/1:103-109
flvjilakilitj of I,sur>«ce in llilu.u...
1^'li^i.iJ jnEARING
BEFORE THE
SUBCOMMITTEE ON
CONSUMER CREDIT AND INSURANCE
OF THE
COMMITTEE ON BANKING, FINANCE AND
URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
JANUARY 4, 1994
Printed for the use of the Committee on Banking, Finance and Urban Affairs
Serial No. 103-109
APR 1 1 1995
U.S. GOVERNMENT PRINTING OFFICE
75-322 CC WASHINGTON : 1995
For sale by the U.S. Government fMnting Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-046623-7
AVAILABILITY OF INSURANCE IN
MILWAUKEE, WISCONSIN
V 4. B 22/1:103-109
HvailaHIiti) of Insurance in Niluju...
FlEi^Jj rtEARING
BEFORE THE
SUBCOMMITTEE ON
CONSUMER CREDIT AND INSURANCE
OF THE
COMMITTEE ON BANKING, FINANCE AND
URBAN AFFAIRS
HOUSE OF REPRESENTATIVES
ONE HUNDRED THIRD CONGRESS
SECOND SESSION
JANUARY 4, 1994
Printed for the use of the Committee on Banking, Finance and Urban Affairs
Serial No. 103-109
APR 1 1 1995
"»»-0Wt«ttrrnnr»HIIW5rerirn/irlT-.iin
U.S. GOVERNMENT PRINTING OFFICE
75-322 CC WASHINGTON : 1995
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-046623-7
HOUSE COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS
HENRY B. GONZALEZ, Texas, Chairman
STEPHEN L. NEAL, North Carolina
JOHN J. LaFALCE, New York
BRUCE F. VENTO, Minnesota
CHARLES E. SCHUMER. New York
BARNEY FRANK, Massachusetts
PAUL E. KANJORSKI. Pennsylvania
JOSEPH P. KENNEDY II, Massachusetts
FLOYD H. FLAKE, New York
KWEISI MFUME, Maryland
MAXE^ WATERS, California
LARRY LaROCCO, Idaho
BILL ORTON, Utah
JIM BACCHUS, Florida
HERBERT C. KLEIN, New Jersey
CAROLYN B. MALONEY, New York
PETER DEUTSCH, Florida
LUIS V. GUTIERREZ. Illinois
BOBBY L. RUSH, Illinois
LUCILLE ROYBAL-ALLARD, California
THOMAS M. BARRETT, Wisconsin
ELIZABETH FURSE, Oregon
NYDIA M. VELAZQUEZ, New York
ALBERT R. WYNN, Maryland
CLEO FIELDS, Louisiana
MELVIN WATT, North Carolina
MAURICE HINCHEY, New York
CALVIN M. DOOLEY, California
RON KLINK, Pennsylvania
ERIC FINGERHUT, Ohio
JAMES A. LEACH, Iowa
BILL MCCOLLUM, Florida
MARGE ROUKEMA, New Jersey
DOUG BEREUTER, Nebraska
THOMAS J. RIDGE, Pennsylvania
TOBY ROTH, Wisconsin
ALFRED A. (AL) McCANDLESS, California
RICHARD H. BAKER, Louisiana
JIM NUSSLE, Iowa
CRAIG THOMAS, Wyoming
SAM JOHNSON, Texas
DEBORAH PRYCE. Ohio
JOHN LINDER, Georgia
JOE KNOLLENBERG, Michigan
RICK LAZIO, New York
ROD GRAMS, Minnesota
SPENCER BACHUS. Alabama
MIKE HUFFINGTON, Cahfomia
MICHAEL CASTLE, Delaware
PETER KING. New York
BERNARD SANDERS, Vermont
Subcommittee on Consumer Credit and Insurance
JOSEPH p. KENNEDY II.
HENRY B. GONZALEZ, Texas
LARRY LaROCCO. Idaho
LUIS V. GUTIERREZ. Ilhnois
BOBBY L. RUSH, Illinois
LUCILLE ROYBAL-ALLARD. California
THOMAS M. BARRETT, Wisconsin
ELIZABETH FURSE, Oregon '
NYDIA M. VELAZQUEZ, New York
ALBERT R. WYNN, Maryland
CLEO FIELDS. Louisiana
MELVIN WATT, North Carolina
MAURICE HINCHEY. New York
PAUL E. KANJORSKI. Pennsylvania
FLOYD H. FLAKE. New York
MAXINE WATERS. California
CAROLYN B. MALONEY. New York
PETER DEUTSCH. Florida
Massachusetts. Chairman
ALFRED A. (AL) McCANDLESS, California
MICHAEL CASTLE, Delaware
PETER KING, New York
DEBORAH PRYCE, Ohio
JOHN LINDER. Georgia
JOE KNOLLENBERG, Michigan
DOUG BEREUTER. Nebraska
CRAIG THOMAS, Wyoming
RICK LAZIO. New York
ROD GRAMS, Minnesota
SPENCER BACHUS. Alabama
RICHARD H. BAKER. Louisiana
BERNARD SANDERS. Vermont
(II)
CONTENTS
Page
Hearing held on:
January 4, 1994 1
Appendix:
January 4, 1994 43
WITNESSES
Tuesday, January 4, 1994
Bowles, John, Businessman 38
Brown, James, Director of the Center for Consumer Affairs at the University
of Wisconsin, Milwaukee 23
Englund, Eric, President, Wisconsin Insurance Alliance 16
Gramling, Sue, homeowner 41
Hall, James, Esquire, Hall, First & Patterson, S.C; Member of the Board
of Directors and Chairman of I^gal Redress, NAACP Milwaukee Chapter ... 8
Hodge, Elmer, Certified Public Accountant, Milwaukee, WI 36
Juckem, Elwood, Insurance Underwriter [Retired], Waukesha, WI 39
Kinsley, Paul, Resident of Milwaukee, WI 37
Latus, Dale, Latus Financial and Insurance 13
Pratt, Hon. Marvin, Alderman, Milwaukee Common Council 3
Tisdale, Bill, Executive Director, Metropolitan Milwaukee Fair Housing Coun-
cil; accompanied by Carla Wertheim, Associate Director, Metropolitan
Milwaukee Fair Housing Council 20
APPENDIX
Prepared statements:
Barrett, Hon. Tom 44
Brown, James 97
Englund, Eric (with attachments) 71
Hall, James 51
Latus, Dale (with attachments) 58
Pratt, Hon. Marvin 48
Tisdale, Bill 86
Additional Material SuBMirrED for the Record
Feingold, Senator Russell D.:
Prepared statement 104
News Release: "Senator Feingold Blasts Shameful Practice Of Insurance
Redlining" 108
(III)
AVAILABILITY OF INSURANCE IN
MILWAUKEE, WISCONSIN
TUESDAY, JANUARY 4, 1994
House of Representatives,
Subcommittee on Consumer Credit and Insurance,
Committee on Banking, Finance and Urban Affairs,
Washington, DC.
The subcommittee met, pursuant to notice, at 11:47 a.m., at the
U.S. Courthouse, Milwaukee, WI, Hon. Thomas M. Barrett [acting
chairman of the subcommittee] presiding.
Staff present: Brian Doherty, Christine Seyfried, Jack O'Meara,
and Sean Cassidy.
Chairman Barrett. We will call the meeting to order. I am Con-
gressman Tom Barrett. I want to welcome you all here today.
This is a subcommittee that was to be chaired by Representative
Joseph Kennedy from Massachusetts, who will not be here this
morning. Yesterday, I was shoveling the snow on my sidewalk,
here in Milwaukee, thinking how fortunate we were that the snow
didn't hit Milwaukee yesterday because of this hearing. I didn't
think, well, the storm is moving East and it will be hitting Boston
today. So it hit Boston over the night and Logan Airport was closed
this morning, so he was not able to make it out.
We are going to go ahead with the meeting. We have with us
some of the staff people from the subcommittee: Brian Doherty to
my immediate right, who is on the chairman's staff; Christine
Seyfried, who is also on the subcommittee staff; and from my staff.
Jack O'Meara.
We have a reporter here who will take down all the testimonv
and we will forward it to Representative Kennedy who is, as I said,
the Chair of the subcommittee.
The way we are going to proceed today is we will have several
panels. First we will start with Alderman Pratt and we will hear
from him and several other people we have asked to testify.
If we have time at the end, I will be more than happy to enter-
tain any public testimony and I am more than happy to stick
around afterwards to talk to anyone who has any strong feelings
one way or the other on this issue.
This Subcommittee on Consumer Credit and Insurance continues
a series of hearings on the availability, affordability, and adequacy
of homeowners' and automobile insurance.
Representative Kennedy has taken the subcommittee to New
York, to Florida, will take the subcommittee to Los Angeles. So he
is holding a series of hearings throughout the country to examine
this issue,
(1)
Lack of access to insurance for low-income and minority citizens
is not a new problem. Dozens of studies over the last quarter cen-
tury suggest a nationwide pattern of discrimination. Residents of
poor and minority communities either pay more than whites for
less coverage or simply are refused insurance.
This apparent discrimination extends even to eminent members
of the community, as we will hear today when Alderman Pratt
shares his experiences with us.
What is new is that the Federal response to the possibilitv of in-
surance redlining is in the works. I am pleased to report that the
House Banking, Finance and Urban Affairs Committee has ap-
proved legislation which requires increased disclosure of where in-
surance policies are written.
By requiring insurers to publicly disclose the race and income of
their policyholders, this legislation will help State and Federal offi-
cials detect and eliminate discrimination.
President Clinton supports antiredlining disclosure legislation,
which increases the chances for the measure's enactment into law
this Congress.
While the problem of insurance discrimination is national in
scope, it is necessarily local in its effect. In Milwaukee, that can
mean that if you live on the north side, you may be unable to ob-
tain insurance from certain companies. If you are able to get insur-
ance, you mav have to pay more to get less.
A study released earlier this year by the Association of Commu-
nity Organizations for Reform Now [ACORN] says that while 93
percent of the single-family housing units in affluent Milwaukee
areas are insured by the State's 25 largest insurers, only 51 per-
cent of single-family units in poorer areas are so insured. The Com-
munity Reinvestment Act requires lenders to make loans available
in poor areas.
When properties are uninsured or inadequately insured, it makes
it nearly impossible for lenders acting in good faith to carry out
this law.
This deprivation cannot continue. Property insurance is abso-
lutely essential for communities to obtain the credit they need to
build stable businesses and homes.
We are fortunate to have several of the people who are involved
in the lawsuit that is now going on in the Federal Court here
today.
Marvin Pratt, as I indicated, will be one of our witnesses; James
Hall, who is the lead attorney in that case; and Dale Latus, who
was agent of the year eight times at American Family Mutual In-
surance, will describe his termination from the company for what
he maintains was his practice of writing policies for African-Ameri-
cans.
I want to make it clear that the subcommittee invited a rep-
resentative of American Family Mutual Insurance to appear here
today. That invitation, unfortunately, was declined.
We did, however, receive a letter from Dale Mathwich, chairman
and CEO of American Family Mutual Insurance, which responds to
the subcommittee's invitation and I ask unanimous consent that
that be included in the record.
[The information referred to can be found in the appendix.]
The subcommittee will also hear from Ms. Carla Wertheim, asso-
ciate director of the Metropolitan Milwaukee Fair Housing Council,
and Mr. William Tisdale, who is executive director of the council.
They will describe the insurance situation in Milwaukee, particu-
larly as it affects minorities.
Mr. James Brown, director of the Center of Consumer Affairs,
will detail the problems which result from the sometimes arbitrary
geographical rate-setting in the area of automobile insurance. Mr.
Eric Englund, president of the Wisconsin Insurance Alliance, will
outline tne response of the insurance industry to the allegations of
racial discrimination.
We have a landmark insurance discrimination case which we will
discuss in some detail today. It is the intent of the House Banking
Committee to have a landmark civil rights law enacted in this Con-
gress which will require the disclosure of where insurance policies
are written in much the same manner we now require banks to dis-
close mortgage loans.
I would like to ask our first witness, Alderman Marvin Pratt, to
please come forward.
Alderman Pratt is chairman of the Economic Development Com-
mittee of the Milwaukee Common Council, and in that capacity has
been at the forefront in addressing insurance discrimination. He is
also a plaintiff in the NAACP v. American Family Mutual Insur-
ance suit.
I want to thank Alderman Pratt for being here today. Good
morning.
STATEMENT OF HON. MARVIN PRATT, ALDERMAN,
MILWAUKEE COMMON COUNCIL
Mr. Pratt. Grood morning and thank you very much, Congress-
man Barrett, my Congressman from the Fifth Congressional Dis-
trict. I am pleased to be here and to appear before you and am
pleased that you have scheduled these hearings here in the city of
Milwaukee on the adequacy, affordability, and availability of insur-
ance here in our city.
My name is Marvin Pratt and I am 1 of 17 aldermen in the city
of Milwaukee. I have been in my present position since 1987, rep-
resenting a district of 38,000 on the north side of the city. My dis-
trict is approximately 72 percent African-American, 25 percent
white, and 3 percent other racial minorities.
My wife, Dianne, and I are part of a group of eight plaintiffs who
are charging American Family Mutual Insurance with insurance
redlining here in the city of Milwaukee.
In 1990, the NAACP, the ACLU, and Legal Aid Society filed
briefs on our behalf outlining what we believe are strong cases of
racial discrimination and demographic discrimination in the insur-
ance field by American Family.
I believe American Family is representative of the overall insur-
ance industry in discriminating against racial minorities in the
selling of homeowners', auto, and also life insurance. I believe that
race of minorities and others, based on where they live — demo-
graphic discrimination — pay more for insurance.
In other words, in most urban areas of this country that gen-
erally are predominantly minority, the people who live there pay
more for insurance, if they are able to get insurance at all, and
they normally receive an inferior product.
My specific experience, which is the basis for my claim against
American Family, is that we, my spouse Dianne and I, received
less coverage from American Family when we moved from a pre-
dominantly white area of the city, the 7900 block, North 55th
Street, to our present home, which is located in a predominantly
black area of the city, the 4800 block on North 16th Street.
At our previous residence on the northwest side of the city from
1978 to 1983, we were given the best homeowner policy that Amer-
ican Family had to offer. When we moved in 1983 and on filing a
claim in 1988, we found out that the policy had been downgraded
to a lesser policy that covered only up to $1,000 of lost or stolen
articles from our household. At our previous address, the total re-
placement cost would have been covered. The policy was lessened
and we were not informed.
Upon inquiring why this had occurred, we were told that because
of our new address, we did not and could not receive the best insur-
ance policy coverage, meaning that our new address was less desir-
able by American Family's standards because there were more
minorities in the area.
Based on my nearly 7 years in public office as a local elected offi-
cial and calls that I received before and after my experience with
American Family, I believe that minority neighborhoods in the city
of Milwaukee suffer because of the lack of available, affordable, and
adequate insurance coverage.
Residents in the central city of Milwaukee probably pay more for
less coverage, receive inadequate coverage, or receive no coverage
for most of the major insurance.
H.R. 1257, the Insurance Consumer Protection Act, would serve
similarly to the Home Mortgage Disclosure Act in that where in-
surance is written and not written would be documented by census
tract.
If the companies are identified that are writing policies, that
would be even better. Public disclosure and possible embarrass-
ment over the lack of writing policies in certain census tracts would
make the industry more receptive, I believe, to do the right thing.
Something has to and must be done. The high cost of insurance,
Eoor coverage, and no insurance contribute to deteriorating neigh-
orhoods, not only here in the city of Milwaukee, but throughout
our urban centers nationwide.
Mr. Barrett, others, I wish you success in your attempt to ad-
dress this most serious problem.
Thank you.
[The prepared statement of Marvin Pratt can be found in the
appendix,]
Chairman Barrett. Mr. Pratt, thank you for your testimony.
Do you think that the policies that vou experienced with Amer-
ican Family are an exception to the rule in Milwaukee? Do you see
other insurers that you believe are engaged in similar practices?
Mr. Pratt. I think there are other insurers that are engaged in
similar practices, and I don't think it is the rule just for Milwau-
kee, as it is the rule, I would submit to you, for most urban areas
that are occupied by a large number of racial minorities.
Chairman Barrett. The bill that is being proposed by Rep-
resentative Kennedy takes sort of a "sunlight is the best disinfect-
ant" approach to this problem. It recognizes that a problem exists.
There are really three roads you can go down once you see that
a problem exists. First, you can do nothing and let the problem re-
main; second, you can ask the government to come in and solve the
problem; third, you can ask the private sector to come in and solve
the problem.
His approach is essentially the third approach, to ask the private
sector to solve the problem, but as you acknowledge in your testi-
mony, by having the data set forth as to where policies are written,
that that will, in your words, embarrass companies in order to do
it.
Do you think that that will adequately address the problem or
do you think more needs to be done?
Mr. Pratt. That's a good question. I think to have the private
sector police themselves would be one way to go and I am in sup-
port of that, but I think maybe more needs to be done also.
I think, you know, what has happened — in city government, the
comptroller's office does an annual financial mortgage reporting
statement and what he does is he lists lending institutions and
where they make loans, and I think just having that report come
out annually put pressure on lending institutions to do better.
So I think while you have to maybe have the specter of having
public embarrassment if they aren't doing what they should do, I
think — I don't know what type of legislation should be structured,
but maybe some type of legislation, too.
Chairman Barrett. Have you dealt at all with the issue of auto-
mobile insurance? How would you describe the problem there?
Mr. Pratt. The issue of automobile insurance? For the most
part, it's done by ZIP Code, and it is my sense and it has been my
experience that based on what ZIP Code you live in, you pay more.
So I think it is a similar problem.
A number of people who may live in areas that I represent
may — and I know of people who do — use ZIP Codes not in the area
in which they live; they use other ZIP Codes. Say if their mother
lived farther out, they may use their ZIP Code and get auto insur-
ance based on their ZIP Code because it is cheaper. So I think, yes,
there are similar problems. Similar problems.
But what happens, too, for homeowners' insurance, if you aren't
able to get the insurance, for the most part you aren't able to get
the house. Even after you get the insurance, if you are paying
more, you have less disposable income to make the necessary re-
pairs on your house. So in the long range, I think it contributes to
a c;ycle of not being able, maybe, to make the necessary repairs,
which leads to deterioration in our neighborhoods.
Chairman Barrett. One of the things that we heard in the com-
mittee in Washington with respect to automobile insurance was a
practice — fortunately we haven't seen it in Wisconsin — where an
automobile insurance company would require an individual to have
homeowners' insurance before they could get automobile insurance.
Given the fact that in some poorer areas, people can't afford to
own their own homes, that is a very subtle way of not permitting
them to get automobile insurance whatsoever.
What would be helpful for me and I think for maybe others here
is if you could describe the geographic and economic makeup of
your former residence and your home, which I believe is in the
Kufus King area
Mr. Pratt. That's right.
Chairman Barrett. Maybe to give people a flavor of the two dif-
ferent neighborhoods.
Mr. Pratt. My former neighborhood, I lived at 7903 North 55th
Street, which is about IV2 blocks south of Bradley Road. The main
intersections would be probably Sherman to the east, 60th Street
to the west, and Brown Deer. So I was right close to Brown Deer,
across the street from Brown Deer High School.
It was an area, I would say probably 30 percent, 25, 30 percent
minority. I lived in kind of a nice residential area. People didn't
want sidewalks on and didn't want street lights. They didn't want
sidewalks and street lights. I moved in 1983 when I ran for public
office the first time and I moved back into the Rufus King
neighborhood.
Now, my previous experience in city government was a property
appraiser for 12 years, so I know residences and I know neighbor-
hoods in the city of Milwaukee. The Rufus King neighborhood, the
area that I chose to move to, was I think one of the finest neighbor-
hoods in the city of Milwaukee and that area specifically was the
highest voting ward in the city of Milwaukee in the first automatic
district. So I wanted to move right in that area. I said if I had a
choice of where I had to live, I wanted to live somewhere between
12th and 20th. So I moved right on the 4800 block of North 16th.
I was real pleased to be there. I would say to you that people
who live in that area are people who choose to live there, for the
most part two-income families or retirees, and could live elsewhere.
So it is an excellent area, I think, comparable or even better than
the area that I moved from.
If there is anything that is different, it is the pigmentation of the
skin of the people who live there and that it is more central city.
It is a central city area. Although I lived in ZIP Code 5 — previously
23, I moved to ZIP Code 9. So I thought it was a very comparable
area.
I had a burglary in my home — in the 10 years, I have had one
burglary there, and that was 1988 — and when we filed the claim,
I think we filed the claim for like $2,500, $3,000, they said oh, we
can only pay you $1,000 because that is all your policy will cover.
We had two incidents at our previous residence, one where light-
ning struck a tree, and the insurance came out and repaired it
within a day or two really, and another we had a minor fire and
repaired that, over $2,500 for the repair of that, and they repaired
it quickly.
The policy that we had when we lived down on 55th was a policy
they called the Grold Star Policy, which was the best American
Family policy, and so they changed the policy to a lesser policy, and
really I didn't know that until we filed the claim.
Chairman Barrett. So that was the first knowledge you had
that your policy had been changed, after you filed the claim?
Mr. Pratt. Right. Exactly right. And after my election, I went to
a couple of meetings called by ACLU and NAACP, and I was going
there just for information kinds of purposes, to hear about insur-
ance redlining, and after I went to these meetings, you know, a
number of people got up and said, you know, this nappened to me
and this is my experience with this insurance company, and as I
sat there — I think I went to the meeting in 1988 — as I sat there
I said, you know, I had something like that happen to me. So I was
going tnere just to become abreast of the issue and ended up being
one of the plaintiffs in the suit, because I think it is commonplace.
Chairman Barrett. With your new home, if I can call it your
new home even though you have been there 11 years now, would
you say that the housing stock is dilapidated or in any way degen-
erate — why don't you describe the homes again.
Mr. Pratt. OK. Thank you.
The home we are in now was built in 1924; you know, Milwaukee
bungalow, brick house, you know, four bedrooms, a family room
downstairs, two baths, just structurally a lot more structurally
sound than the previous house, than the house we moved out of,
I believe. The house we moved out of was more maybe aestheti-
cally — maybe more aesthetically pleasing, but this house we are in
now is more structurally sound, you know, leaded glass, oak, just
a very, very nice home in an area of very, very nice homes. It is
very stable.
I would say to you that you see very few For Sale signs in that
neighborhood and, you know, Rufus King High School being an-
other positive force in the neighborhood, Phillips School being right
up the street being very positive for the neighborhood. It is just a