California Property & Casualty Broker-AgentCalifornia LawHard
A California insurance company uses an underwriting guideline that automatically declines coverage for all applicants residing in a specific zip code, regardless of individual risk factors, citing high crime rates in that area. This practice is most likely a violation of which of the following?
- AThe California Financial Information Privacy Act
- BThe Gramm-Leach-Bliley Act
- CThe Fair Credit Reporting Act
- DUnfair Practices - Redlining
Show answer & explanationAnswer & explanation
Correct answer: D. Unfair Practices - Redlining
Redlining is the illegal practice of denying or limiting insurance coverage to applicants in specific geographic areas, often based on demographic factors rather than actual risk. This scenario describes a clear instance of redlining, which is an unfair trade practice under the California Insurance Code.
Why the other options are wrong
- A. CalFIPA also deals with privacy of financial information, not underwriting discrimination based on location.
- B. GLBA focuses on financial privacy, not discriminatory underwriting practices.
- C. FCRA deals with consumer credit information, not geographic underwriting practices.
Redlining
The illegal discriminatory practice of denying or limiting insurance coverage based on an applicant's geographic location, rather than individual risk.
- Considered an unfair trade practice.
- Often affects areas with specific demographic profiles.
- Prohibited under California Insurance Code.
Memory trick: Underwriters must be fair, not drawing lines anywhere.